12.20.10
Posted in LightSquared, Operators, Regulatory, Spectrum at 1:54 pm by timfarrar
Today, Boeing announced an agreement with the Mexican government to build the MEXSAT system, including two new L-band satellites with 22m diameter antennas (which appear to be a copy of the SkyTerra-1 and 2 satellites), plus a smaller FSS satellite which will be purchased from Orbital Sciences. This order has been the subject of speculation for several months, because of its implications for the future of Satmex.
However, it also has significant implications for L-band coordination, because the March 2010 order, which approved LightSquared’s re-use of the spectrum assigned to Mexico’s previous generation Solidaridad satellites, did not grant “any authority to share spectrum with [Mexico's planned next generation] system in the absence of coordination”. Indeed the Mexican government’s comments in that proceeding claimed that the power spectral density (PSD) level proposed by SkyTerra/LightSquared “would be harmful to service operating levels circulating through the MEXSAT network”.
With LightSquared now trying to gain approval for its updated business plan, over the protests of the GPS Industry Council and others, and move forward with the buildout and commercial launch of its ATC network next year, this new Mexican system means that there will have to be renewed efforts to reach a new L-band coordination agreement. It will also be interesting to see whether this has any additional implications for the LightSquared business plan, given that LightSquared asserted in requesting approval of its application that the “proposed reuse is critical to the successful deployment of SkyTerra’s next-generation system, particularly with respect to accessing spectrum that is sufficiently contiguous to provide broadband services”.
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12.10.10
Posted in LightSquared, Operators, Regulatory, Spectrum at 10:14 am by timfarrar
Apparently following the principle that the enemy of my enemy (i.e. AT&T and Verizon) is my friend, LightSquared has garnered significant support for its business plan from the Nevada State Democratic Party, the Progressive Leadership Alliance of Nevada, and other organizations, who you wouldn’t normally expect to see cheering for “one of the world’s richest hedge fund managers“. However, absent from the debate (at least so far) are those who applauded the actions of the FCC when it “pulled the plug on a plan to use a rigged auction to award spectrum to a telecom start-up [M2Z] backed by billionaire venture capitalist and Democratic campaign donor John Doerr”, who might be expected to be opposed to a plan that could very well prevent the US Treasury from gaining “compensation for the step-up in value” when MSS spectrum is used for terrestrial-only services.
It is notable that LightSquared’s application comes in the midst of the net neutrality debate, with proposals apparently set for a vote at the FCC’s December 21 meeting. With rumors that the proposals will largely exclude wireless networks from having to comply with net neutrality obligations, it seems very plausible that a deal could be in the works to approve LightSquared’s open access network at the same time, and thereby demonstrate to net neutrality advocates that there will be at least one 4G wireless network that will undertake to comply with net neutrality rules.
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12.09.10
Posted in LightSquared, Operators, Regulatory, Spectrum at 4:01 pm by timfarrar
A host of comments have now been filed with the FCC in response to LightSquared’s recent updates to its ATC business plan. These include supportive comments from numerous individuals and “public interest organizations“, plus notably a comment from T-Mobile, which also urges the Commission to rule on LightSquared’s application expeditiously, rather than deferring it to a more general proceeding.
LightSquared itself filed reply comments, justifying its showing of “integrated service”, although it is pretty easy to identify areas where LightSquared has carefully skated around the issue. For example, LightSquared argues that its arrangement with Qualcomm “eliminates price as a factor for end users deciding whether to use dual-mode handsets”, although of course if a handset designer can leave out the satellite functionality (especially if it would need a relatively large internal antenna similar to that inside the Genus phone) then the handset could be smaller and more attractive to end users (as Leap Wireless and others have argued in the NPRM/NOI proceeding).
It now seems that the FCC has a decision to make in the very near term, about whether to approve the modification request and potentially help Harbinger move forward with potential deals such as that apparently envisaged with Leap Wireless, or to delay approval and potentially risk the future of LightSquared and Harbinger. Certainly Harbinger appears to be under considerable pressure from the recent LightSquared satellite antenna failure, and continued scrutiny in the press, and at the end of this month, Harbinger’s investors will have to decide whether or not to follow through with their redemption requests. LightSquared will presumably also have to pay over $100M to Boeing on account of its payment deferrals in the next week or two, and exercise its Phase 2 option with Inmarsat which was promised by the end of the year.
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12.06.10
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:02 pm by timfarrar
LightSquared has received significant backing from the highest levels of FCC as the company moves forward with deployment of its 4G LTE network, including several statements by FCC Chairman Genachowski in support of LightSquared’s public unveiling in July and its plans to donate 2000 handsets to the Indian Health Service, announced in September. Now we will have to wait and see whether the FCC will act to approve LightSquared’s recently updated ATC business plan, which met with significant opposition from cellular interests last week. These comments requested that this “novel re-interpretation of the Commission’s integrated service requirement” be deferred for consideration as part of the currently pending MSS rulemaking proceeding, which would likely delay any resolution of the request by many months.
Unfortunately it seems that LightSquared doesn’t have the friend in high places that really matters, as an act of God appears to have left the SkyTerra-1 satellite (which was launched on November 14, carrying “with it, the ambitions of one of the world’s richest hedge fund managers, Philip A. Falcone“) experiencing problems in deploying its 22m L-band antenna. While we probably won’t know until the end of this month whether or not the problem can be solved, if it can’t, then the satellite would very likely be unable to communicate with LightSquared’s handsets, and the company would be forced to launch the SkyTerra-2 satellite (which may or may not have been intended to remain a ground spare). Space News estimated last week that this could probably be done “within a year”, but that was before Sunday’s Proton rocket failure, which fell into the Pacific Ocean along with its cargo of 3 Glonass satellites. Although SkyTerra-2 currently is listed as having a March 15, 2011 launch date, it seems hard to imagine that it would be possible to go ahead with the launch at that point in time, unless the antenna was uninsured (as happened with TerreStar-1 in the wake of the Solaris problems last year).
In the meantime, it will be interesting to see whether and how LightSquared moves forward with the buildout of its terrestrial LTE network, which it is required to construct “without regard to satellite service” under the second of the conditions agreed with the FCC in March this year. Given the apparent potential for conflict between this condition and the original ATC gating criteria (which require satellite service to be commercially available before the ATC network is launched), it will be particularly fascinating to see what the FCC does next.
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11.29.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 3:57 pm by timfarrar
Last Friday the FCC extended the deadline for comments on the LightSquared’s updated ATC plans to December 2, with reply comments due by December 9, after a request from the CTIA. As I noted last week, it will be interesting to see the response from different cellular industry players, to what the CTIA characterizes as a “new precedent with significant legal, regulatory, and policy effects”.
If the FCC does agree to LightSquared’s request that it should be permitted to offer integrated service just to its wholesale customers, with no obligations upon those customers to offer only integrated service packages, this would mean that end users would then be able to purchase terrestrial-only terminals and service plans. In such circumstances, it is hard to see what would be gained by the 2GHz MSS players agreeing to relinquish their spectrum for an incentive auction, and to share the proceeds of that auction with the government. As a result, the FCC could end up torpedoing the intentions of its own NPRM/NOI, particularly the objective of gaining “appropriate compensation for the step up in value” of the 2GHz spectrum, because, as the FCC admits, it cannot force DBSD and TerreStar to give up their satellite spectrum, while these companies have operational satellites in orbit. Both companies would therefore presumably be well within their rights to hold out for a similar wholesale ATC-based arrangement to that planned by Harbinger and LightSquared, under which they could keep all of the proceeds from (for example) a leasing arrangement with a major cellular operator.
The FCC might still have some leverage, as it would be able to impose buildout conditions on any proposed ATC license modifications (or on a future merger of DBSD and TerreStar). However, any deal could also be delayed considerably by the additional uncertainty that would be introduced over the value of the 2GHz MSS spectrum in the current bankruptcy proceedings. This is likely to be particularly problematic in the case of TerreStar, where it already appears that there will be substantial disagreements between the parties concerned, due to the numerous classes of creditors, including both secured and unsecured debt holders at TerreStar Networks, plus preferred and common stock holders at TerreStar Corporation.
Such an outcome would clearly help Harbinger, as it looks to attract investors and partners for LightSquared, because the 2GHz spectrum would then provide a less clear-cut alternative for cellular operators such as T-Mobile. In that context it was particularly interesting to see a research note issued last week by New Street Research in London, which rated a “deal with Echostar (as likely owner of TerreStar and DBSD spectrum)” as the most probable of five alternative spectrum sources for T-Mobile USA, while suggesting that “a deal with LightSquared (or its successor)” was the least likely option for T-Mobile.
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11.22.10
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:49 am by timfarrar
On November 18, LightSquared filed an updated showing with the FCC of its plans for compliance with the ATC gating criteria. LightSquared states that it will ensure that its wholesale offering includes 500 kbytes of satellite capacity for every 1 Gbyte of terrestrial capacity it provides to a partner, and that dual mode chipsets are available through its $50M development agreement with Qualcomm. However, LightSquared also admits that its “retailer customers will have the ability to offer terrestrial-only plans to their own end users” and that it intends to “file reports with the Commission every six months providing the number of terminals in service falling into each of three categories: MSS only, dual-mode MSS/ATC, and terrestrial-only” (implying that terrestrial-only chipsets and/or devices will also be developed).
In view of the poor reception that the TerreStar Genus phone has received, both in the MSS community and amongst terrestrial-oriented reviewers, it is hardly surprising that potential LightSquared partners are unlikely to be enthused about attempting to sell a dual mode satellite-terrestrial service to a mass market, and would much prefer the opportunity to offer terrestrial-only service. Indeed, as I noted previously, the responses from Leap Wireless and T-Mobile in the FCC’s current MSS NPRM/NOI proceeding, were supportive of interpreting the ATC gating requirements in a manner which would allow for terrestrial-only devices.
While LightSquared states that its “revised business plan satisfies the Commission’s integrated service requirements for L-band MSS systems” the original ATC rules did not consider the business plan that LightSquared now envisages, that of a wholesale provider whose customers are retailers (or other operators) who repackage and sell on the service. For example, the FCC’s February 2005 ATC report and order states:
The purpose of ATC is to enhance MSS coverage, enabling MSS operators to extend service into areas that they were previously unable to serve, such as the interiors of buildings and high-traffic density urban areas. We will not permit MSS/ATC operators to offer ATC-only subscriptions, because ATC systems would then be terrestrial mobile systems separate from their MSS systems. We therefore clarify that “integrated service??? as used in this proceeding and required by 47 C.F.R. § 25.147(b)(4) forbids MSS/ATC operators from offering ATC-only subscriptions.
LightSquared appears to be arguing that because it is offering integrated service to its customers, it is irrelevant whether or not those customers offer ATC-only subscriptions to their end users. Likewise, instead of seeking the safe harbor that all devices will be dual mode, LightSquared apparently intends this narrative (as required by the February 2003 ATC Order) to provide “for Commission review evidence demonstrating that the service they propose to offer will be integrated. This can be accomplished through technical, economic or any other substantive showing that the primary purpose of the MSS licensee’s system remains the provision of MSS.”
It will therefore be interesting to see the responses to this application (although as noted below the short timeframe may limit the number of comments) and the degree of support that LightSquared receives from the FCC. It seems all but certain that AT&T and Verizon will continue their hostility to LightSquared, while assuming Sprint remains committed to Clearwire, it would also likely be counted on to oppose the application. On the other hand, I would expect most of the smaller cellular operators including T-Mobile, Leap and US Cellular to be supportive, as they look to ensure that more spectrum options are available when they eventually decide how to move to 4G.
One additional (and more speculative) conclusion that could also be drawn from this submission is that LightSquared may now push off the announcement of any major partnerships (for example with one or more cellular operators) until more clarity is available on the FCC’s attitude to both this application and the MSS NPRM/NOI (where LightSquared has requested that the FCC reconsider the requirement for a ground spare satellite). This is because it would seem surprising for LightSquared to introduce additional regulatory uncertainty over its business plan if the company was in a position to announce a series of partnerships in the near term (which until recently I had expected might come shortly after the launch of SkyTerra-1). Nevertheless, LightSquared has announced previously that it intends to exercise its Phase 2 option with Inmarsat before the end of the year (which will involve substantial additional payments), and Harbinger appears to be under considerable pressure from its investors to demonstrate the progress it is making, so there will undoubtedly be more developments in this story soon.
UPDATE: Given that the FCC has placed this submission on an extremely accelerated timescale, with comments due by November 29 (immediately after the Thanksgiving holiday) and reply comments due by December 6, it seems plausible that LightSquared might well be expecting to receive a decision on this application very soon. Assuming this ruling was favorable, LightSquared might therefore still be able to announce its planned partnerships and exercise the Phase 2 spectrum option with Inmarsat before the end of the year.
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11.19.10
Posted in Financials, LightSquared, Operators, Regulatory at 10:34 am by timfarrar
Back in March, we noted the rumors that Huawei could end up building and vendor financing the LightSquared network to the tune of $1B+ and highlighted the potential security concerns that would be associated with such a move. Today the Wall St Journal’s story on Huawei appears to confirm this rumor, stating that Huawei’s “acquisition attempts since [2008], including an attempt to buy into Harbinger Capital LLC’s high-speed wireless network, have been quashed due to security-related concerns as well, according to a report by the U.S.-China Economic and Security Review Commission”.
This raises the interesting question of whether Huawei was one of the potential funding sources that Harbinger was counting on when it decided to buy SkyTerra in 2009, and whether Nokia Siemens Networks (NSN) was actually the second choice as prime contractor to build the LightSquared network, after the Huawei deal fell through. It also leads us to wonder whether NSN will eventually provide substantial vendor financing for LightSquared, and at what stage that will be announced. With Reuters reporting last week that Nokia and Siemens were making “little progress in efforts to find a deep-pocketed partner for their ailing telecom gear venture” it might now be more difficult for NSN to make a major funding commitment to LightSquared in the near term.
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11.14.10
Posted in Financials, LightSquared, Operators, Spectrum at 5:42 pm by timfarrar
Am I the only person to be somewhat suspicious about the timing of this week’s revelations of withdrawal requests from Harbinger’s funds and investigations by the Securities and Exchange Commission and U.S. Attorney’s office into whether the firm “misled investors” and “improperly allowed some clients to withdraw money following the financial crisis while barring others from doing so”? Though these stories have just emerged, it appears that the withdrawal requests were submitted at the end of September, while the investigations began this summer. As a result, I have to wonder if the timing of these stories was intended to derail the next stage of LightSquared’s plans.
This last week has seen wireless operators such as US Cellular and Leap Wireless state explicitly that they could be open to becoming wholesale customers of LightSquared. T-Mobile also appears to be keeping its options open, given it has not yet struck a deal with Clearwire as was being negotiated back in September, and T-Mobile also indicated potential interest in LightSquared’s capacity this week. Whether or not these operators want to do a deal with LightSquared today, it is certainly in their interests for LightSquared to survive, and to be available as a potential source of capacity when they do reach a decision on 4G. That would, at the very least, help to hold down the price of alternative spectrum (from a source such as Clearwire or a future FCC auction), and their expressions of support come at an important moment for Harbinger.
LightSquared stated over a month ago that it had “already signed wholesale distribution agreements” and was “in advanced negotiations with numerous potential partners”. It also said that the company intended “to accelerate its planned implementation of the Phase 2 agreement, which now will take effect by the end of the year”. With today’s successful launch of the SkyTerra-1 satellite, I had expected to see an announcement of at least some of these partnerships in the very near future, in conjunction with additional equity investments (whether from wholesale partners, or perhaps more likely from other financial investors) to validate the valuation that Harbinger has placed on LightSquared. However, with Harbinger’s clients fuming, we will have to wait and see whether the recent revelations will delay or even derail these plans.
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11.08.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 4:18 pm by timfarrar
Last Thursday, Clearwire announced that it was laying off 15% of its staff (as I suggested a couple of weeks ago), in an attempt to conserve its cash resources, which are only expected to last “through the middle of 2011″. When news first emerged of the Clearwire spectrum auction back in mid-October, I suggested that it was going badly and appeared to have been leaked by Clearwire itself, and it certainly doesn’t appear that the auction has concluded with a positive outcome (i.e. with T-Mobile agreeing to pay a significant amount for the 40MHz of spectrum that Clearwire was trying to sell).
The question now arises of what this means for LightSquared, which has also been pursuing a deal with T-Mobile as a potential wholesale customer and/or strategic partner for its 4G LTE network. Although T-Mobile appears not to have struck a deal with Clearwire, and thus is at least potentially still a partner for LightSquared, it is far from clear whether this is good news. If T-Mobile’s interest in Clearwire was thwarted because of roadblocks thrown up by Sprint (i.e. Sprint’s unwillingness to share a network with a key competitor), then it is quite possible that a deal with LightSquared could still be on the cards. However, if instead T-Mobile has decided that the price of spectrum is only going to go down over the next 6-12 months (and perhaps even in the medium term), as Clearwire and LightSquared become increasingly desperate for a deal, then that would certainly be bad news. T-Mobile might even be waiting to see if the 2GHz MSS spectrum could present another possible alternative, once the TerreStar and DBSD bankruptcies are resolved, given that this spectrum is closer to its existing PCS and AWS holdings than either the LightSquared L-band spectrum or the Clearwire 2.5GHz spectrum, and could even be available without ATC restrictions (via an incentive auction) in a couple of years’ time.
Whatever the reason, if T-Mobile does delay its decision on 4G spectrum (which might well be suggested by the recent rebranding of its HSPA+ network as 4G), then that would tend to indicate that it is not feeling too much pressure from the supposed “spectrum crunch”. While that may be at least partly because it won’t be offering the iPhone anytime soon, it will be interesting to see whether it also prompts more people to question the received wisdom about future spectrum demand.
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11.01.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 5:59 pm by timfarrar
Wall Street analysts always seem to have a difficult time understanding the MSS industry. Who can forget the forecasts from the late 1990s that the MSS industry would generate tens of billions of dollars in annual revenues within a few years?
Now we see equally wild guesses about the TerreStar bankruptcy and what might happen to those assets. Jonathan Chaplin of Credit Suisse suggested that there could be a grand bargain between LightSquared, TerreStar and DBSD to pool their spectrum for wireless broadband. Unfortunately this prospect appears to have been comprehensively shot down by Harbinger’s apparent attempt to disrupt the TerreStar Restructuring Support Agreement by buying TerreStar’s Exchangeable Notes.
Next up was Jason Bazinet from Citigroup, with speculation that Echostar was intending to build a satellite-based mobile video network using TerreStar and/or DBSD’s assets. However, this bizarre analysis completely misunderstands the limitations of satellite services: you can build a satellite-based broadcast network using a limited number of repeaters (just like Sirius XM has done), but then its only useful in cars, not for serving the tablet market that Bazinet assumes would be the target market for the service (unless you like standing around outside in a field to watch the video programming). And of course the in-car market for subscription-based video is a small fraction of the market for satellite radio (while Qualcomm’s MediaFLO business has been little short of a disaster), because solo commuters can’t exactly spend their time watching TV whilst driving down the freeway.
So we’re left with the question – can anyone come up with a better analysis of what’s going to happen to these assets, or will we just have to wait for more to be revealed at the end of this week?
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