Deal or no deal?

Posted in Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 11:52 am by timfarrar

After the FCC’s release yesterday evening of the agenda for the March 22 Commission Meeting, we are soon going to find out if DISH has struck a deal with the FCC to secure a waiver of the ATC restrictions in the 2GHz MSS band. Some commentators have seen the FCC agenda as a negative sign, pointing to potential delays in DISH’s deployment, based on the comments made by Charlie Ergen last week.

However, another way to look at this announcement is that the FCC is simply moving to implement the provisions in the spectrum bill signed by the President last week (including the proposal for “an alternative band plan…at 1695-1710 MHz”), which as I pointed out, clearly indicates that DISH would potentially give up 10MHz of spectrum and move its uplink band up by 5MHz to enable use of the PCS H-block.

Assuming that DISH gives up half of its uplink spectrum and this is converted into an additional 10MHz unpaired downlink at 2000-2010MHz (with an implicit guardband at 2010-15MHz), thereby maximizing the value of spectrum to be included in a future auction (and allowing Sprint the possibility of a 10x20MHz LTE Advanced network), then a rulemaking would certainly be needed to develop service rules for this new band configuration. However, it seems unlikely that the FCC would want to go back on what appears to have been a carefully engineered compromise passed by Congress just a couple of weeks ago. Given that Sprint’s agreement to settle its litigation against DISH back in October was also likely founded on a desire to gain access to the H-block spectrum, it wouldn’t just be DISH that would be upset by such a decision.

The proposed rulemaking may also achieve a couple of other purposes for the FCC. First of all it allows any deployment timetable to be keyed off the point when the new rules become final, thereby solving the arguments over whether the clock should start running on DISH’s buildout now or in 2015. Secondly it may help to push any bid by AT&T to buy DISH out beyond the November 2012 election and provide time for DISH to pull together an alternative consortium of partners (which might include one or more of T-Mobile, MetroPCS, DirecTV and America Movil). The wholesale access conditions contemplated by the Commission could then ensure that AT&T would not be able to unwind other partners’ access to this network in the future.

UPDATE (3/2): The FCC has just approved the transfer of control for DBSD and TerreStar this evening, but denied DISH’s application for the waiver, deferring this issue to the NPRM which will be considered at the Commission meeting on March 22. It appears that the FCC still wants to pursue the path outlined above, but was worried about the ramifications of granting the waiver without consideration of the proposed deal in a full public rulemaking, especially in the context of impending litigation from LightSquared. This also should allow the Commission to push any prospective bid from AT&T for DISH beyond the November 2012 election. However, with DISH noting in their results call that a refusal to grant the waiver could cause them to significantly change their plans, it will be very interesting to hear DISH’s reaction and see whether they will take this proposed deal off the table (for example by returning to the dual mode handset model contemplated by the original ATC rules), thereby torpedoing the FCC’s chances identifying 15MHz of additional spectrum to auction as Congress mandated last month.

FURTHER UPDATE (3/2): It sounds like the FCC is doing its best to reassure DISH that the outcome of the rulemaking is going to result in the band being redesignated for terrestrial-only services, and that a ruling will come before the end of the year. DISH’s response (with its reference to delaying “the advancement of some of President Obama’s and the FCC’s highest priorities”) appears to hint at the real reason for this delay, that after the LightSquared debacle, the White House simply doesn’t want any more trouble before the November 2012 election, and certainly doesn’t want to contend with an AT&T takeover bid for DISH in that timeframe.


Spectrum bill dishes on DISH deal…

Posted in Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 6:15 pm by timfarrar

Close scrutiny of the spectrum related legislation in last week’s jobs bill appears to give a pretty comprehensive outline of the deal that is to be expected between the FCC and DISH over its transfer of control and waiver request for the TerreStar and DBSD spectrum. In particular, the FCC is tasked with auctioning the H block spectrum (1915-20/1995-2000MHz) and extended AWS-3 block (2155-2180MHz) plus 15MHz in the 1675-1710MHz band (presumably the 1695-1710MHz block previously recommended by the NTIA, though note update below), as well as identifying an additional 15MHz of contiguous spectrum to be auctioned.

Assuming that this additional 15MHz of spectrum is intended to be contiguous with the other spectrum listed above (rather than being a single 15MHz contiguous block), then it appears that DISH will give up 2x5MHz of its 2x20MHz of DBSD/TerreStar spectrum (2000-05/2180-85MHz), and move its uplink frequencies up by a further 5MHz into the original J block uplink (2020-25MHz) in exchange for the waiver, and so that there is no windfall to be criticized as in the case of LightSquared.

This would leave DISH with 2x15MHz of spectrum at 2010-2025MHz (uplink) and 2185-2200MHz (downlink) and would implicitly create a new guardband in the 2000-2005MHz block (though the FCC would apparently still be supposed to auction this spectrum) and a new paired block at 2005-10/2180-85MHz to be auctioned (though this block would likely be repurchased by DISH or its partners in the ensuing auction because it would have relatively little value to other players). As Walt Piecyk at BTIG Research previously noted, Sprint should also then be well positioned to add the H-block spectrum to its G-block LTE network (assuming that the 1915-1920MHz uplink would not interfere with the PCS downlink spectrum at 1930MHz).

Alternatively if the FCC really does intend to auction a single contiguous 15MHz block then I would expect DISH to give up 10MHz of its uplink spectrum, and move up into the J block uplink, creating an asymmetric 10x20MHz allocation with 2015-2025MHz uplink and 2180-2200MHz downlink. That might allow an extra 10MHz downlink of downlink to be inserted above the H block (at 2000-2010MHz), with an implicit guardband left at 2010-15MHz. Given the much higher value of downlink spectrum in a carrier aggregation model, this trade would potentially allow the FCC to raise much more money from a subsequent auction (though it would also prevent DISH from buying back the 2x5MHz it had given up).

Based on an ex parte filing by DISH last week, the company is also prepared to accept conditions to “facilitate competitive carriers’ access to DISH’s planned nationwide wireless network”, and presumably with these concessions the FCC would permit a relatively relaxed buildout mandate as DISH has requested. An extended timeline would also help DISH because the re-auction of the spectrum they would give up would probably come ahead of the activation of their new network, and potentially therefore allow 2x20MHz operations from launch (assuming DISH repurchased the spectrum).

However, AT&T is fighting a rearguard action to impose the same buildout conditions as LightSquared and therefore remove DISH’s flexibility to ally with alternative partners, which it seems could include not just MetroPCS or DirecTV but perhaps even T-Mobile and/or America Movil. Of course the more credible DISH’s alternative plan is, then the higher the premium that AT&T would have to pay to take over DISH, but based on DISH’s filing there appears to be no doubt that the FCC is determined to ensure wholesale access to DISH’s LTE Advanced network remains available to other operators, whether or not DISH is taken over by AT&T. After approval of the TerreStar transfer of control by the Canadian regulator two weeks ago, it now appears that the FCC is expected to announce its ruling in the first half of March, so we should know the answer to all of these questions very soon.

UPDATE (2/22): With respect to the 15MHz of spectrum to be identified in the 1675-1710MHz band, this was originally expected to be an uplink band (to be paired asymmetrically with the AWS-3 downlinks), and would therefore most appropriately be located next to the AWS-1 uplinks at 1710-55MHz. However, I understand that there is pressure to use this 15MHz of spectrum for either carrier aggregation downlinks or TDD operation, which would not be feasible right next to the AWS-1 uplinks. As a result, it is plausible that the 15MHz of reallocated spectrum could be moved to the bottom of the band (1675-90MHz), adjacent to Crown Castle’s 1670-75MHz block, which is leased to LightSquared Inc.

Harbinger has previously stated that it plans to sell this spectrum to raise money and the potential windfall from the spectrum bill creating a contiguous 20MHz block of spectrum might increase its value significantly. Harbinger would presumably hope to pay off the term loan of roughly $300M which is due for repayment on July 1 (this is separate from the debt secured by LightSquared’s satellite assets), and that would require the 5MHz block to achieve a value of around $0.35-$0.40/MHzPOP once the costs of buying out the Crown Castle lease are taken into account. Though that may be feasible, with only a small 5MHz sliver of spectrum being sold, it seems unlikely that this sale could raise enough to provide a meaningful amount of additional capital or any return to Harbinger on their previous investment in the company. In addition, it is much harder to see any use for the 8MHz of 1.4GHz spectrum leased from TerreStar, and so it is unclear how long this lease will continue. However, for once it seems plausible that Harbinger might have finally found one small block of spectrum that the government can enable them to actually make a profit on. Its just a shame that so much more money has been wasted on unusable satellite spectrum in the meantime.


Complicated legal arguments…and simple math

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 2:23 pm by timfarrar

Today, the complexities of both the LightSquared and DISH regulatory processes both got even more messy. In the DISH waiver proceeding, AT&T filed an ex parte submission urging the FCC to impose buildout conditions on DISH similar to those imposed on LightSquared (260M POPs within 5 years 9 months), rather than any financial clawback to address the increase in value of the spectrum that a waiver would produce. AT&T also asks for conditions to be imposed on DISH’s 700MHz spectrum in line with the conditions imposed on AT&T’s recent purchase of spectrum from Qualcomm.

This submission is a blatant attempt by AT&T to put a thumb on the scales, as the FCC weighs up the appropriate balance between buildout mandates and clawback of any windfall. The reason for AT&T’s action at this very late stage in the process appears to be that DISH is trying to play off AT&T’s prospective bid against a potential venture with MetroPCS. MetroPCS would certainly be unwilling to commit to a 260M POP buildout, so if the FCC conceded AT&T’s demands, they would be the only game in town and DISH would lose its leverage in price negotiations. We’ll find out soon enough if AT&T’s gambit succeeds, but few would bet against Charlie Ergen’s poker playing skills after the events of the last year.

In the even more complex LightSquared process, the FCC has today issued a Public Notice establishing a Pleading Cycle in respect of LightSquared’s December 2011 Petition for Declaratory Ruling, which sought to establish that GPS receivers were not entitled to interference protection. This Pleading Cycle, with comments due by Feb 27 and replies by March 13, almost certainly pushes back an FCC ruling on the LightSquared testing into the second half of March, because the FCC would want to deal with all of these issues simultaneously. As a result, attention is now likely to be focused around April 1 (appropriately enough All Fools Day), when LightSquared is due to make the next interest payment on its debt and another ~$30M payment to Inmarsat.

The most intriguing issue in the Public Notice is the FCC’s subtle attempt to decouple the resolution of GPS interference from LightSquared’s January 2011 waiver, suggesting that any provision of the “terrestrial portion of service” is subject to the “Interference-Resolution Process” which “to date…has not been completed”:

On January 26, 2011, the International Bureau granted LightSquared Subsidiary LLC (a subsidiary of LightSquared Inc., hereinafter also referred to as LightSquared) a conditional waiver of the ATC “integrated service” rule, thereby establishing certain conditions that LightSquared must meet before it can provide the terrestrial portion of service contemplated by its proposed integrated satellite and terrestrial 4G wireless network. The Conditional Waiver Order prescribed an Interference-Resolution Process by which LightSquared would work with the GPS community to resolve concerns raised about potential interference to GPS receivers and devices that might result from LightSquared’s planned terrestrial operations. As a condition of commencing such commercial operations, the Conditional Waiver Order required that this process first be “completed,” a term defined as the point at which “the Commission, after consultation with NTIA, concludes that the harmful interference concerns have been resolved and sends a letter to LightSquared stating that the process is complete.”

The reason for this is because LightSquared has indicated that, in the event it was blocked from operating, it would withdraw the January 2011 waiver application and claim it had the right to operate a dual-mode (satellite-terrestrial) service under the conditions of the FCC’s 2005 rulings. While that might not be economically viable (or practical), the FCC would presumably then be forced to step in to protect GPS and thereby supposedly “infringe” on LightSquared’s claimed “property rights”. The Petition for Declaratory Ruling is also an attempt to eviscerate the interference protections contained in the 2005 rulings (referred to as CFR 25.255) and thereby make the supposed infringement of LightSquared’s rights all the more obvious.

Thus, from this Public Notice, it does appear that the FCC is at least cognizant of LightSquared’s legal strategy, and is likely (as I predicted) to ultimately rule that the Interference-Resolution Process should be prolonged (and extended to cover GPS receiver/interference standards) and that in the interim LightSquared will be prohibited from commencing any terrestrial operations. LightSquared is apparently contending that this wouldn’t constitute a MAC on its debt covenants, but I suspect that’s an argument some of the debtholders (including Mr. Icahn) will want to test in court.

All this makes for a very complicated set of legal arguments, but one additional piece of information did emerge today that sheds some light on the big picture of why it has been so hard for spectrum holders to monetize their assets, and why the FCC has come in for so much well deserved criticism. DSL Prime is reporting that growth in mobile data usage is running at less than half the level predicted by Cisco and that the FCC staff “demanded their name be taken off” the FCC’s October 2011 demand forecast, because they “didn’t believe the claims in this paper”. However, with so many gullible journalists and investors buying into the idea of a (manufactured) “spectrum crisis” rather than a “spectrum bubble“, perhaps its a bit less surprising that LightSquared has been able to raise over $2.5B of investment in the last 18 months.


Sprint’s fundraising efforts…

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 1:04 pm by timfarrar

In addition to Sprint’s announcement today that it plans to offer new debt in a private transaction, Sprint has more quietly been rounding up additional money from both LightSquared and DISH. In Sprint’s most recent 10-Q, filed yesterday, the company notes that “In September, the [spectrum hosting] arrangement was amended to change the September 30, 2011 contingency date for LightSquared’s performance to December 16, 2011. The December 31, 2011 contingency date remained unchanged. This amendment also provided for an additional prepayment of $20 million, which was received in October 2011.” Today, Sprint has told the FCC that “DISH and Sprint have today reached an agreement to settle all of these [reimbursement] disputes among Sprint, DISH, and their subsidiaries and affiliates in a mutually satisfactory manner” and will presumably therefore be paid a significant proportion of its $220M claim against DBSD and TerreStar ($110M per company) for BAS relocation expenses.

UPDATE (11/7): DISH has now revealed that it will pay Sprint a total of $114M, though it is not yet clear if Sprint will retain any additional claims in the bankruptcy cases of DBSD and/or TerreStar Networks.

However, the two disclosures appear to have rather different consequences for LightSquared and DISH. In the case of LightSquared, this represents another $20M of expenditure over and above the amount assumed in my analysis earlier this week. More importantly, Sprint has set a precedent under which it will now presumably expect to be paid even more money when LightSquared is unable to meet the revised deadline of December 16 and the second deadline of December 31 (and of course it is certain that the FCC will not be able to rule by then, because LightSquared’s proposed filter for precision GPS equipment is not being tested by the government this month, as LightSquared has now admitted).

I also now suspect that Boeing’s vendor financing loan may simply have been extended (perhaps by 12 months?), from its original December 2010 repayment deadline, and a new deadline is likely to occur relatively soon, because Boeing will need some certainty about whether the SkyTerra-2 satellite will be available for its MEXSAT project. If Boeing does insist on repayment (of what would now be $130M+) within the next few months, then (faced with the unpalatable alternative that LightSquared forfeits the ground spare satellite and potentially jeopardizes its ATC license) LightSquared could well run out of money before its next first lien interest payment in April. Specifically, my estimate on Monday was that LightSquared would have about $170M in cash at the end of Q1 2012, which would not be sufficient to cover a payment of $130M+ to Boeing, plus the $20M already paid to Sprint and the additional payments that are now likely in respect of the December deadlines. Even without making any repayment to Boeing, if LightSquared needs to pay Sprint an extra $20M for each additional 3 month deadline extension, then it would have barely enough money to make the interest payment due on April 1, 2012.

In the case of DISH, it appears that the news of a Sprint settlement is more positive, as it removes one of the main roadblocks to the FCC approving a transfer of control of the DBSD and TerreStar assets to DISH. However, DISH’s requested ATC waiver has come under more pressure, with AT&T now joining the CTIA in pressing for the waiver issue to be considered in a full rulemaking proceeding. Interestingly, both AT&T and the CTIA raise the question of a windfall, with the CTIA explicitly noting (footnote 21) that:

While DISH argues that it took into account the possibility of future flexibility for the spectrum during the bankruptcy process, certainly other parties were not factoring that into the process. Moreover, 40 MHz of nationwide, terrestrial broadband spectrum would not be valued at $2.8 billion. When looking at past valuations for such spectrum assets, a valuation of 3 to 4 times this would be more realistic if terrestrial rights were guaranteed.

Of course, that statement once again highlights the issue of LightSquared’s own $10B windfall problem which the GPS industry are now making so much of, and makes it harder for the FCC to grant DISH a waiver without some way to recover value for the Treasury. As a result, it is plausible that (with the transfer of control and ATC waiver being processed by the FCC in separate dockets) a ruling on the transfer of control could come ahead of any waiver decision.

UPDATE (11/14): A November 9 ex parte filing from DISH appears to confirm that the FCC is concerned about the “windfall” issue and might separate the transfer of control ruling from the waiver requests.


DISH plays it cool, Sprint changes its tune…

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum at 11:03 am by timfarrar

Last week we saw various filings from wireless companies and the CTIA on DISH’s transfer application/ATC waiver request for DBSD and TerreStar, which mostly just served to highlight the interests of the different wireless operators. MetroPCS asked the FCC to force DISH to provide a detailed business plan before considering the transfer application (in other words to do a deal with them rather than wait for a decision on the AT&T/TMO merger). Sprint asked the FCC to condition the transfer on reimbursement of Sprint’s relocation expenses, and to impose the same buildout conditions on DISH as the FCC imposed on LightSquared in exchange for the waiver (thereby potentially forcing DISH to pay Sprint to host their buildout). Meanwhile the CTIA asked the FCC to defer any decision on a waiver until a more general rulemaking proceeding has been completed (thus allowing the wireless operators to find out what will happen to the AWS-3 spectrum and whether the 1755-1780MHz block will be available for pairing). Ironically the CTIA cited potential interference with the G-block PCS spectrum as a reason for delay, when Sprint (who owns this spectrum) didn’t even mention it in their submission.

DISH’s formal response is due tomorrow (Oct 27), but an ex parte submission and an interview with Charlie Ergen both highlight that DISH is going to make sure that the FCC is under more pressure to conclude this proceeding (and finally take the first step towards its goal of making more spectrum available) than DISH is. Indeed DISH would clearly prefer to wait until a decision is reached on the AT&T/TMO merger, because if the proposed merger is blocked then more potential partnerships would open up. In my view, the most likely partnership would then be with AT&T, which has come close to a deal to buy DISH in the past, and would be able to use both DISH’s 2GHz MSS-ATC spectrum and its 700MHz E-block spectrum (in conjunction with the MediaFLO spectrum that AT&T plans to buy from Qualcomm).

However, the FCC still has to avoid giving DISH a similar spectrum windfall to LightSquared and if DISH is to avoid having to give up part of the spectrum for reauction, it will have to come up with some creative way to reimburse the Treasury financially for any windfall (e.g. offering to pay the difference between what it paid for DBSD and TerreStar and the amount the adjacent J-block 2020-25/2175-80MHz spectrum sells for in any future auction).

Today, it seems that Sprint has rowed back somewhat on its implied threat on October 7 to force Clearwire into bankruptcy, announcing a “non-binding memorandum of understanding to work together” on ensuring that the two companies’ LTE networks will be interoperable. While this is only a limited first step towards Sprint providing concrete backing to Clearwire in 2013 and beyond, it appears designed to allow Clearwire to go out and attempt both to raise new funding and to secure other partnerships ahead of the early December deadline for Clearwire’s next interest payment on its debt. In the short term the most plausible new partnership would be with MetroPCS, which recently said it is “uniquely positioned” to do something with Clearwire, though it is unclear how much of a financial commitment this would actually involve on MetroPCS’s part.

Yesterday Sprint also indicated that it plans to deploy a 2x10MHz LTE Advanced network in its 800MHz iDEN spectrum, which is the subject of today’s MoU on interoperability. By using this additional spectrum for LTE (rather than CDMA as had been previously stated), Sprint would be able to deliver LTE across a mix of low (800), medium (1900) and higher (2500) frequency spectrum bands depending on the population density in a given area, with the Clearwire network providing supplementary capacity in the densest urban areas. If other wireless operators adopt a similar model, then Clearwire could become a wholesaler to multiple major carriers (e.g. Verizon as a supplement to its LTE deployment which is currently at 700MHz and will later extend to AWS), as would be needed if Clearwire is to build a wholesale business on the back of covering at most 100M-150M POPs. Nevertheless, it will take a minimum of several years before a company like Verizon or AT&T would realistically need that additional capacity and so Clearwire still has a lot of work to do (and a lot more money to raise, now that its WiMAX cashflows are likely to diminish) to pull off its transition to a multi-network wholesale provider of urban capacity, not least in creating an ecosystem around TD-LTE in the 2.5GHz band.

However, at least Clearwire appears to have a plausible plan for how to move forward, unlike LightSquared, which has now basically been written off by MetroPCS and (after today’s announcement) implicitly by Sprint as well. On that basis, it looks like Harbinger’s write-down of its LightSquared investment at the end of September will end up being only the first of several such actions. Its also very hard to see how investors in LightSquared’s first lien debt believe that they will be able to realize even 50 cents on the dollar in bankruptcy, when the most likely outcome is that there will be no purchasers for LightSquared’s spectrum at any price, because the regulatory risks will not be resolved and the ongoing Inmarsat lease obligation potentially outweighes the residual value of LightSquared’s spectrum assets.


Writer’s block…

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 11:26 am by timfarrar

It seems that Sprint is not having much luck with timing when it comes to the announcement of its 4G strategy. Back in March it was apparently poised to announce a deal with LightSquared at CTIA, which was derailed by the AT&T/T-Mobile merger announcement. Now Sprint has just sent out invitations to its October 7 strategy update, only for the DoJ to announce it is filing suit to block the merger.

As Sprint attempts to write the “fourth chapter” in its 4G strategy for this October event, it appears the upheaval caused by this unexpected DoJ announcement could very well complicate its plans. It has been reported that Sprint has engaged in discussions with several cable companies, but most coverage had focused on whether this would lead to a takeover bid for Clearwire. However, there isn’t much need for a resolution of the Clearwire situation ahead of October 7 – what Sprint really requires is a solution for its wide area LTE coverage rollout rather than the urban capacity enhancement that Clearwire intends to provide. With little probability that it can use LightSquared’s spectrum in the immediate future, and only a limited quantity of its own PCS spectrum available for LTE, I think its more likely that the next chapter of Sprint’s strategy would have involved the cable operators exchanging their SpectrumCo AWS holdings (a near national 20MHz block acquired for only $0.43/MHzPOP in the 2006 auction) for an equity stake in Sprint itself.

Now the DoJ’s actions this morning have introduced considerable uncertainty about whether this would be the best way forward for Sprint, both because a Sprint/T-Mobile merger could ultimately be back on the table, and because the cable companies could potentially sell their AWS holdings to T-Mobile, which was previously regarded as the obvious purchaser for these assets. Thus I think on balance its now less likely that Sprint will have a major new agreement with the cable companies to announce in October.

There could also be repercussions for DISH’s filing with the FCC for a waiver of the ATC restrictions in the 2GHz band. There are certainly many positives, in that either T-Mobile or AT&T could once more become a viable partner for DISH, but it also seems likely that the FCC may be unwilling to decide how it will handle the DISH application (and more particularly what conditions it will agree to) until the ultimate disposition of the AT&T/T-Mobile merger is decided. That’s because there will be less need to insist on DISH becoming a standalone competitor (and perhaps even to provide wholesale access commitments) if there are still going to be four national wireless operators in the market, though of course the FCC will still want to ensure that DISH does not simply flip the spectrum to one of those “big guys”, as some people apparently think it will do.


Place your bets…

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 2:08 pm by timfarrar

Today, DISH has filed its transfer application for TerreStar’s 2GHz spectrum licenses with the FCC, stating that it plans to combine the spectrum with that of DBSD, so that it can use the full 40MHz to launch a “hybrid satellite and terrestrial mobile and fixed broadband network…to provide American consumers with greater choice for mobile broadband services”. DISH plans to deploy its network “based on the LTE Advanced standard” for which “commercial devices are expected to be generally available by 2014″, and seeks permission “to provide dual-mode terminals to customers who want them, and single-mode terrestrial terminals to customers who do not want the satellite function” noting that “relief from the integration requirement is an important component of DISH’s plan”. DISH also seeks a waiver of the ATC gating requirement to acquire a backup satellite.

In exchange, DISH states that it “is prepared to work with the Commission to develop a reasonable, attainable buildout schedule keyed to commercial availability of the LTE Advanced standard” and make “certain substantial terrestrial network deployment commitments intended to increase wireless broadband competition, including in rural areas”. However, though DISH has previously indicated that it will seek partners for its mobile broadband play, it does not commit to make network available on a wholesale basis to third parties.

As I’ve pointed out previously, DISH is now in a perfect position to replace LightSquared as the FCC’s favored option for providing additional wireless competition. Indeed DISH highlights specifically in the TerreStar application that “use of the [2GHz] band also does not give rise to the GPS interference issues that have hampered the use of the L-band” which is one of the factors meaning that the “promise of MSS/ATC has yet to be fully realized”. DISH also notes pointedly that it is “a well-financed, capable, and recognized innovator in communications technology [with] unique experience in developing an innovative and competitive retail operation and growing it from zero to approximately 14 million subscribers”.

Thus this application now sets the scene for a negotiation with the Commission over the terms of the promised buildout, including the specific coverage commitments and perhaps even some later promise (depending on the views of DISH’s key partners) to enter into wholesale deals with smaller players. With the cable companies apparently aligning themselves with Sprint, it looks very much like DISH will now partner with MetroPCS and perhaps even DirecTV and/or Leap as well.


Throw ‘em under the bus?

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 3:07 pm by timfarrar

It seems from today’s unexpected press conference that the FCC Chairman has finally realized that there is no way to avoid the fact that the GPS interference issues are a showstopper, and he is now preparing the ground to basically throw LightSquared under the bus. In particular the FCC is now characterizing the January waiver as a “stop work” order, stating that there is “no timetable” for the review (despite LightSquared’s recent insistence that it was “confident that the FCC will green-light its plans in mid-September”) and suggesting that there will now be more testing of the lower band plan, while use of the upper band will not be “happening anytime soon.”

Judging from these comments, my best guess is that there will now be six more months of testing on the lower band proposal (lasting into the spring or early summer of 2012, depending on how long it takes to issue the ruling), and a final decision could plausibly be deferred until after next year’s Presidential election (in order to avoid a political battle with the farming lobby). In addition, I suspect that even if LightSquared (assuming it is still around) received approval at that time, there could still be a delay of several years for precision users such as farmers and surveyors to modify their equipment before the lower band was brought into use.

Of course the reason that LightSquared had insisted on a mid-September approval is that it needs to raise additional funding before it can move forward with the Sprint deal, and as noted in Sprint’s 10-Q, there are “contingencies related to possible interference issues” in the network hosting agreement which give Sprint the right “to terminate the arrangement if certain conditions are not met either by September 30, 2011 or December 31, 2011.” However, this would apparently involve giving back LightSquared’s prepayments, so it seems more likely that the agreement would be “terminated for LightSquared’s material breach, non-payment or insolvency” in which case “Sprint maintains a second lien on certain of LightSquared’s spectrum related assets” (though that may be worthless) and presumably can also keep any payments made by LightSquared. Unfortunately, as stated today, although the FCC “would be sensitive to the financial situation of LightSquared’s owner, Harbinger Capital … that would not affect how it came to its decision on how to proceed” and FCC officials “insist they never told LightSquared the review would be completed by [mid-September].”

On the other hand, this morning, DISH stated that it plans “to make a mobile broadband play with its recently acquired S-Band satellite spectrum” and it intends to play a “significant role” in the wireless industry. When asked if DISH would reveal its strategy as soon as the Sprint announcement on October 7, DISH cautioned that they “wouldn’t expect anything in the near term.” Thus it seems that with LightSquared now left hanging, and the stock prices of Sprint, MetroPCS and Leap all suffering badly after their Q2 results, DISH is in an increasingly strong position, and may want to take more time to obtain the best possible terms for the partnerships needed for its wireless strategy. However, if that is the case, it is harder to see what might be a plausible “fourth chapter” for Sprint’s wireless strategy in early October, and it is always possible that DISH’s comment could be intended to put pressure on Sprint to offer them a better deal.


The perfect storm…

Posted in ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 3:49 pm by timfarrar

As LightSquared continues to be engulfed by a tidal wave of criticism from the GPS industry, it now appears that this storm is setting up perfectly for DISH Network to solve the FCC’s problem: how to ensure that a competitive wholesale mobile broadband network can be deployed when it seems nearly impossible for LightSquared to use its L-band spectrum. While some think that DISH could lease its 2GHz spectrum holdings to LightSquared, to me it seems far more likely that DISH has plans for its own national 4G LTE wireless network, in partnership with “somebody who is more of an expert in that business than we are“.

Indeed in the application to transfer DBSD’s spectrum licenses to DISH, filed back in April, the company stated that “we expect the transaction to result in the provision of mobile broadband services” and in particular:

DISH plans to deploy a hybrid satellite/terrestrial system dedicated to the provision of mobile broadband services. If successful, consumers will be able to use their mobile terminals for high-speed Internet access as well as a myriad of Internet Protocol-based, over-the-top applications, including mobile video. DISH expects that the consumer equipment will include broadband-capable tablet computers, among other devices. DISH anticipates offering services both on a stand-alone basis and in a consumer-friendly bundle with its multichannel video services.

If DISH does manage to line up the partners to deploy such a network (potentially including MetroPCS, whose interest in the 2GHz band is well known), then that might well leave LightSquared to sink without a trace, as it would make it much easier for the FCC to defer to demands from the NTIA for six months of additional testing on LightSquared’s new spectrum plan. Of course, a six month delay would put the decision timeframe into the midst of a presidential election year, when it is all but inconceivable that either the White House or Congress would go against the wishes of millions of farmers, engineers, aviators and boaters.

In contrast, an alternative network proposed by DISH would have a ready made support base, not only from those parties demanding increased wireless broadband competition, but also from all those who have demanded that LightSquared’s network be moved outside the L-band. It seems both sides would therefore be eager to support the FCC granting DISH a waiver similar to LightSquared, permitting terrestrial-only devices, if DISH was to commit to aggressive buildout milestones and to providing wholesale access to its network capacity as Harbinger did back in March 2010.

Today there have been renewed rumors that Sprint will announce a deal with LightSquared during its Q2 results call on July 28, although another source has suggested to me that Sprint does not intend to set out its Network Vision plans at that time. Thus I’m left wondering whether this is an attempt to derail DISH’s plans, which certainly seem to be in pretty high gear, judging by the number of visits DISH has made to the FCC in recent weeks to discuss the 2GHz MSS spectrum band.

Maybe we are therefore moving towards the last few minutes of this Seinfeld episode. However, as Charlie Ergen knows only too well, in Seinfeld there are very few happy endings, except when they come at someone else’s expense.


Building a network or a legal case?

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 10:07 pm by timfarrar

I noted 10 days ago that one possible outcome for LightSquared would be for the company to sue the US government and/or FCC if it was unable to move forward because of the GPS interference issues. Last week’s Technical Working Group report submission was accompanied by a very strongly worded set of recommendations by LightSquared blaming the GPS industry as “it is inescapable that their disregard for the Commission’s policies regarding the immunity of receivers to transmissions in nearby frequency bands that is the source of the technical problem”.

This set of recommendations served to deflect from the results of the TWG itself, which highlighted widespread interference and the difficulties in mitigating this even under LightSquared’s revised plan. However, it also may act as something of a red rag to a bull, in terms of Congress’s reaction if the FCC does allow LightSquared to move forward. Of course, if Congress did act to ban LightSquared from operating, then that would provide a much more definitive trigger for any legal action by LightSquared (compared to a move by the FCC to delay any decision or postpone authorizing LightSquared’s operations until more testing is carried out).

On the other hand, while the FCC is still considering whether to give LightSquared the go ahead, it seems unlikely that we will see more overt legal threats. Indeed, the FCC’s deliberations about how to treat LightSquared are especially sensitive because it seems that some blame for the interference problems could very well attach to the FCC, given its apparent failure to live up to the commitments made in the 2005 ATC Order:

While we agree with the GPS Industry Council, NTIA, and other government agencies that it is essential to ensure that GPS does not suffer harmful interference, it is also important to ensure that new technologies are not unnecessarily constrained. In this regard, we recognize that the President’s new national policy for space-based positioning, navigation, and timing (PNT) directs the Secretary of Commerce to protect the radio frequency spectrum used by GPS and its augmentations through appropriate domestic and international spectrum management regulatory practices . . . . Furthermore, the President’s PNT policy calls for the establishment of an inter-agency Executive Committee, on which the Chairman of the FCC will be invited to participate as a liaison, and a National Space-Based PNT Coordination Office. It is our intention to establish discussions with other agencies, through the PNT Executive Committee and Coordination Office as appropriate, to better understand what protection levels for GPS are warranted. The results of those discussions may lead to future rulemaking proposals in order to ensure that all FCC services provide adequate protection to GPS, and produce a more complete record upon which to establish final GPS protection limits for MSS ATC

Since the release of the TWG report, LightSquared has been attempting to highlight other signs of progress, including raising $265M of additional funding today. However, it seems that the vast majority of this new funding is likely to have been in the form of Harbinger having to stump up its previously unfunded $250M commitment to LightSquared. Harbinger also seems to be experiencing some internal turmoil, and it will be very interesting to see what has happened at the end of the second quarter in terms of redemptions. Most problematically, with the FCC comment and reply period on the TWG report now extending until August 15, and indications that the FCC will not rush to judgment after that, it appears more likely that Sprint will announce details of its Network Vision plan before it has been determined whether LightSquared is able to move forward or not.

In parallel with this activity, it seems we may know more about DISH’s plans for DBSD and TerreStar relatively soon, as comments are due on Friday in the 2GHz spectrum consultation. After Charlie Ergen met with the FCC Chairman on June 22 to discuss matters including DISH’s recent 2GHz MSS spectrum acquisitions, it now seems ever more likely that DISH could provide a readily available alternative source of spectrum for prospective LightSquared partners.

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