03.17.10
Posted in Financials, Handheld, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:27 pm by timfarrar
This morning I had a brief chance to try TerreStar’s new Genus phone before the MSS CEO panel at Satellite 2010/MSUA-7. As pointed out in previous posts, the link is quite sensitive to phone orientation (remember not to turn around during a call). In addition, the phone software is still being optimized to address various issues such as the delay in establishing a voice channel after a call is answered, and the registration time necessary to switch from cellular into satellite mode. However, satellite SMS appears to work well (both to and from the phone) and may end up being more important to TerreStar than originally anticipated. It will therefore be interesting to see to what degree TerreStar is able to take customers away from Iridium and other MSS providers (as TerreStar’s CEO indicated was his ambition) once the phone enters commercial service in the next few months.
While some questions remain about TerreStar’s satellite service, more clarity is emerging about Harbinger’s likely ATC plans after the release of the National Broadband Plan yesterday. As we noted a few weeks ago, it appears that a consortium is being put together by Harbinger (and a team of executives recruited) to build a new entrant LTE-based mobile broadband network, using a mixture of spectrum in the L-band, 2GHz band, 1.4GHz band and 1670-75MHz band, along with substantial vendor financing. The Broadband Plan indicates that the FCC is likely to be supportive of moves to accelerate the deployment of an ambitious ATC network, though Harbinger’s network would probably not require any substantive changes to current FCC regulations. It has been suggested to us that the network would ultimately require $4B of capex and another $4B in funding for subscriber acquisition and other costs, indicating a similar scale of ambitions to Clearwire, which is targeting a subscriber base of 30M users over a 10 year period. Such a plan would certainly be a transformative move for the entire MSS industry (even if its focus is almost entirely on terrestrial services), and so all of us will be waiting with bated breath to see whether Harbinger realizes its plans, something that now seems more likely than not to become clear in the very near future.
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02.24.10
Posted in Financials, Globalstar, ICO/DBSD, Inmarsat, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 11:32 am by timfarrar
So the cat is out of the bag. As we noted last December, the FCC has been looking hard at how to make sure MSS spectrum is put to productive uses, and now in a speech by Chairman Genachowski, he has stated that the Plan will propose a Mobile Future Auction “permitting existing spectrum licensees, such as television broadcasters in spectrum-starved markets, to voluntarily relinquish spectrum in exchange for a share of auction proceeds, and allow spectrum sharing and other spectrum efficiency measures”. Specifically:
“The Plan proposes resolving longstanding debates about how to maximize the value of spectrum in bands such as the Mobile Satellite Service (MSS) or Wireless Communications Service (WCS) by giving licensees the option of new flexibility to put the spectrum toward mobile broadband use-or the option of voluntarily transferring the license to someone else, who will.”
It is going to be very interesting to see whether this “new flexibility” involves further liberalizing the regulations governing ATC, over what would undoubtedly be the heated objections of existing wireless carriers (who have always had a problem with potential “windfalls” for MSS spectrum holders). For example, would the FCC contemplate removing the requirement that all terminals must include satellite capability and offer a dual mode service (similar to the European S-band licenses which do not include any such restrictions)? Presumably any such carrot might come with a corresponding “use it or lose it” stick, although if an operator chose to stay with MSS-only services, it is hard to imagine that any third party could use the spectrum for terrestrial services at the same time.
However, MSS operators will certainly now be faced with a choice: do they continue to bet that (what conceivably might be more liberalized) ATC is the best way forward, and hope they can either partner with a leading wireless operator or attract investors to a new entrant wireless business plan, or do they agree to return their spectrum to the FCC in exchange for a share of the proceeds in the proposed Mobile Future Auction? The rest of this year will certainly be filled with many twists and turns in the MSS sector as we see which way operators will jump.
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02.18.10
Posted in Financials, Handheld, Inmarsat, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:05 pm by timfarrar
The FT’s Alphaville blog has highlighted various documents filed by SkyTerra with the SEC as part of its going private transaction with Harbinger, and suggested that Harbinger is still focused on the acquisition of Inmarsat that it originally proposed back in July 2008.
However, in our view these documents actually indicate the opposite, that although Harbinger is actively attempting to put together a consortium to fund an ATC network deployment, this is unlikely to include a bid for Inmarsat. The UBS analysis for Harbinger in July 2009, suggests three possible strategic options after the privatization of SkyTerra (Sol), namely:
(a) Acquire Inmarsat (Ignis)
(b) Pursue the Inmarsat (Ignis) Coordination Agreement
(c) Lease TerreStar (Taurus) Spectrum.
Over the last several months, it is clear that Harbinger has in fact pursued options (b) and (c) rather than option (a) (although admittedly it would not be able to launch a bid for Inmarsat prior to the SkyTerra takeover):
- SkyTerra declared the Inmarsat Coordination Agreement effective in December 2009 (prior to the two year deadline for this action); and
- TerreStar announced in January 2010 that it had entered a 90 day exclusive negotiation period to lease its satellite spectrum to Harbinger in exchange for an advance of $30M against its prior terrestrial (1.4GHz) spectrum lease to Harbinger.
While the Inmarsat coordination agreement (including its payment of $250M to Inmarsat to fit filters to existing Inmarsat terminals) is a necessity to make use of SkyTerra’s spectrum in any ATC network, in our view the potential Harbinger-TerreStar satellite spectrum lease is a direct alternative to pursuing a takeover of Inmarsat (albeit one which may not give access to European S-band spectrum, unless TerreStar is successful in its challenge to the European S-band process, or either Inmarsat or Solaris give up their licenses for this spectrum).
Similarly, while we understand that Harbinger is attempting to raise money from a consortium of investors over the next month or two, using this new funding to acquire Inmarsat would mean that it could not be used to fund a near term buildout of an ATC network. In fact, given the rise in Inmarsat’s stock price over the last year, it appears plausible that Harbinger might even decide to sell off some of its Inmarsat shares in order to provide funding for an ATC deployment, especially if Inmarsat decides to go down the route of spending its cashflows on a new I5 constellation with Ka-band capabilities.
There would be two ways in which an ATC network deployment could happen: if the buildout was funded by an existing wireless operator as a way to add capacity to its existing network, or as a (self-funded) standalone 4G new entrant to the US wireless market. We believe that Harbinger is pursuing the second of these alternatives at present, because the (less expensive and risky) first option is simply not open to it for the foreseeable future. As SkyTerra notes in its preliminary proxy statement:
“The Company had been actively pursuing a major strategic partner for a considerable period of time. In addition, during early to mid 2009 the Company had pursued and encouraged such parties to submit indications of interest to make an investment in and/or acquire the Company. No such partnering efforts were successful and no bona fide offers were received. In the judgment of Morgan Stanley, it was unclear that there was a short-or-medium term need for additional spectrum by ATC companies who were potential strategic partners. In addition, potential strategic partners had sources of spectrum other than through a partnership with SkyTerra, including via spectrum auctions by the FCC, and sales from SpectrumCo, Clearwire or from other entities in the satellite sector.”
Thus the pressing question is whether Harbinger will now be able to convince prospective partners/investors that a new entrant wireless business plan (presumably similar to that of Clearwire but based on LTE) would make sense. Though some funding might be available from (for example) an equipment vendor who would like to demonstrate its 4G technology (as has happened with Clearwire), it is less obvious who might be interested in providing distribution. Most importantly, with doubts persisting about whether Clearwire (with significant backing from wireless and cable operators) will be able to develop a sustainable 4G business, Harbinger will need to demonstrate a compelling reason why customers should choose its service over those of more established wireless providers. The only credible differentiator for such a wireless network lies in the satellite roaming capabilities that will be available (and mandated) in an ATC network deployment (and which Mr Falcone suggested to the Wall St Journal back in April 2009 would attract “vast global demand”). Thus potential partners’ attention will need to be focused on the TerreStar Genus phone (which now looks like it will come to market sometime in the second quarter of this year, after the deadline for Harbinger to complete its potential satellite spectrum lease with TerreStar), and whether they believe it can provide a compelling demonstration of competitive differentiation and market demand, based on this satellite roaming capability.
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12.07.09
Posted in ICO/DBSD, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 10:41 am by timfarrar
On Friday Dec 4 we attended an FCC discussion of the National Broadband Plan here in Menlo Park, at which Carlos Kirjner and Blair Levin presented on various issues being addressed in development of the National Broadband Plan. The most interesting part of the presentation was the assertion that “at least 150MHz” of TV spectrum could be freed up by relocating over the air TV broadcasters to a smaller portion of the UHF band “while keeping all major channels on the air”.
Its been widely discussed how the broadcasters might be incentivized to move, perhaps by offering them a share of the future auction proceeds, so at the end of the presentation I asked if a similar arrangement would be available for other spectrum bands, such as MSS. Blair Levin confirmed that other bands, including MSS-ATC spectrum, were also under review and that historic band allocations may no longer be optimal to meet future wireless spectrum demand. As part of the FCC’s review of Harbinger’s proposed purchase of SkyTerra, the FCC has also asked some very detailed questions about SkyTerra’s progress towards an ATC deal, and the discussions that they have had with different parties.
Will the National Broadband Plan provide an alternative way for MSS operators such as SkyTerra, ICO/DBSD and TerreStar to monetize their spectrum, as it does not look like any of these operators are going to move forward with ATC deployment in the near future? Globalstar’s ATC lease agreement with Open Range is seeing more progress, but is limited to a few million rural consumers (and the Open Range terrestrial rollout is being supported by USDA loan guarantees).
Certainly in the 2GHz band (unlike the L-band) there are no existing satellite services which would prevent operators returning their spectrum to the FCC for re-auction. The National Broadband Plan is due to be published in February 2010, so we will soon see whether the FCC is going to come up with a plan to make sure that MSS spectrum is put to use in terrestrial networks in a more timely manner.
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11.16.09
Posted in Globalstar, Inmarsat, Iridium, LDR, LightSquared, Operators, Orbcomm, Services at 12:37 pm by timfarrar
Inmarsat revealed in its 2009Q3 results that it is in negotiations to acquire a satellite services provider that generated more than $50 million in revenue in 2008, is currently profitable and will have no material indebtedness at closing, in a purchase that would cost less than $150M. There are very few companies in the MSS space that fit the profile given by Inmarsat, but one that does is SkyBitz, which Inmarsat noted in its June 2009 investor day presentation was one of the “key competitors” in the satellite Low Data Rate (LDR) market. Inmarsat also noted that one of its objectives in investing in SkyWave was to “stimulate consolidation in the [satellite LDR] market”.
Indeed, back in July we speculated that a possible resolution to the fight between Inmarsat and SkyBitz over what SkyBitz characterized as “restrictive trade covenants included by Inmarsat” in its SkyWave investment would be for Inmarsat to facilitate a buyout of SkyBitz. An Inmarsat acquisition of SkyBitz would have the added benefit (for Inmarsat) of taking out another of SkyTerra’s key LDR customers, in addition to the 50K GlobalWave customers who were moved from SkyTerra’s satellites to Inmarsat’s I4 satellite network in October 2009.
***We’ve now been reliably informed that Inmarsat’s current acquisition target isn’t SkyBitz. We understand it is most likely a system integrator focused on government business. We don’t have a name at this point, but one company in this area that would fit the disclosed parameters is Segovia. There are likely several other similar possibilities as well.***
We’ve lamented previously that no-one ever seems to leave the MSS industry, but if Inmarsat does eventually follow through on its stated ambitions to stimulate consolidation in the LDR market, then perhaps that sector could be one place where much needed MSS industry consolidation finally begins.
In that context, with Orbcomm having yet another disappointing quarter, we wonder if now is the time for a competitor to make a bid for Orbcomm. After all, the company expects to settle the $50M insurance claim for the failure of all of its QuickLaunch satellites “imminently”, at which point Orbcomm will not have spent too much on its second generation constellation and will still have a reasonable amount of cash on its balance sheet. That might be particularly attractive to Globalstar or Iridium, either of which would benefit greatly from moving Orbcomm’s subscribers over to their own networks (albeit with significant costs for terminal upgrades), and could allay investor concerns about whether Orbcomm can fund the rest of its second generation satellite constellation (which would be exacerbated if the company fails to receive something close to $50M from its insurance claim in the near future). With its partners postponing some new service offerings until messaging delays are resolved, Orbcomm will need these new satellites sooner rather than later if it to build a sustainable business and generate the rapid growth that has been promised ever since the company’s IPO in 2006, but to date has failed to materialize.
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07.03.09
Posted in Inmarsat, LDR, LightSquared, Operators, Regulatory, Services at 9:12 am by timfarrar
In April 2009, Inmarsat announced that it would be taking a 19% stake in SkyWave, facilitating SkyWave’s acquisition of Transcore’s satellite communications assets. However, SkyBitz, Wireless Matrix, XATA and Comtech Mobile Datacom [the Commenters] jointly objected to SkyWave’s FCC application for the transfer of these assets, citing “numerous and substantial negative impacts on MSS Providers and other end-users using L-band capacity”. Although the submission is heavily redacted, it appears that one of their primary concerns relates to the “restrictive trade covenants included by Inmarsat” in the Transaction and they demand an explanation of how Inmarsat “will ensure non-discriminatory treatment of all MSS Providers and other end-users with respect to capacity, availability and contractual terms and conditions”. The Commenters “believe in fact that the Transaction will (i) actually eliminate competition for end-users (as a result of the Covenant), (ii) delay deployment of advanced satellite services to end-users other than SkyWave’s customers, (iii) result in higher pricing to end-users at the expense of higher margins for SkyWave and Inmarsat, and (iv) ultimately reduce the affordability of MSS services for end-users.”
While it remains unclear exactly what is contained in the “Covenant” referred to in these comments, Inmarsat noted at its recent investor conference that one of its motivations for investing in SkyWave was to promote consolidation in the Low Data Rate (LDR) industry, and that more than half of the investment comes in the form of future airtime credits. The Transaction also “provides for a fully funded development programme for new products and services” and will drive “traffic growth on Inmarsat satellite network”, we assume at least partly as a result of SkyWave and Transcore committing to use Inmarsat’s capacity exclusively (Transcore currently uses SkyTerra’s L-band capacity in North America). The airtime credits and development program certainly give SkyWave an advantage over other providers using leased L-band capacity, and this financial and commercial advantage is presumably what would induce the “consolidation” that Inmarsat seeks.
What is particularly interesting is that on June 29, SkyWave withdrew its FCC application to undertake the Transaction and on June 23, Inmarsat (in conjunction with other MSS operators) sought an extension of time until July 14 to respond to the FCC’s consultation proceeding for its Third Annual Report to Congress on Status of Competition in the Provision of Satellite Services in which the only meaningful concern was also expressed by SkyBitz.
With SkyBitz (which currently uses leased SkyTerra capacity) cited by Inmarsat as one of the “key competitors” in the LDR market (and the only plausible one that could switch to Inmarsat capacity, since the other key competitors listed, namely Iridium, Qualcomm and Orbcomm, all use incompatible technologies), it will be very interesting to see what happens over the next few weeks: will Inmarsat restructure (or even abandon) the SkyWave Transaction to eliminate the “restrictive trade covenants” that SkyBitz is concerned about (presumably making it more difficult to promote the consolidation Inmarsat seeks), or will Inmarsat actually facilitate a deal between SkyBitz and SkyWave to fulfill its market consolidation objective and eliminate the most prominent source of objections?
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07.01.09
Posted in Financials, Globalstar, Handheld, ICO/DBSD, Inmarsat, Iridium, LightSquared, Operators, Services, Spectrum, TerreStar at 10:25 am by timfarrar
With apologies to the Eagles…its a lovely place, for MSS consumers at least. However, for MSS operators it seems to be somewhere you can check out [or go bankrupt] anytime you like, but you can never leave.
Today we’ve seen confirmation that Globalstar is now fully funded to complete the construction and launch of its first 24 second generation satellites by the end of 2010, while TerreStar has launched its new S-band satellite from Kourou, French Guiana and intends to initiate commercial services at the end of this year. Iridium also looks increasingly likely to complete its deal with GHL, since GHL’s shares and warrants are now trading well above the $10 value that would be refunded to investors if they voted down the deal. While there has been much speculation about potential mergers in the last two years, these now look less, rather than more, likely to occur in the near future (with the sole exception of SkyTerra’s Harbinger-backed bid for Inmarsat, which should be decided one way or another later this year).
Thus by early 2011, it looks like we will have at least four and more likely six voice and data MSS systems providing service in North America (Inmarsat, Iridium, Globalstar and TerreStar plus ICO and SkyTerra) and four systems (Inmarsat, Iridium, Globalstar and Thuraya) providing service in most of the rest of the world. With new advanced satellites, consumers will benefit from improved data capabilities and smaller, cheaper handheld satellite phones.
However, the development of at least three new systems (ICO, TerreStar and SkyTerra) and to some extent Globalstar as well (based on financial analysts’ comments at the time of its IPO in November 2006) has been justified largely by the value of MSS spectrum, due to the FCC’s rules enabling deployment of Ancillary Terrestrial Components (ATC), rather than by the intrinsic potential of the market for mobile satellite services itself. Thus, unless and until demand for MSS spectrum and ATC materializes, we run the risk of overcapacity for land-based MSS services, particularly in North America. This will certainly benefit end users, and price reductions (especially in conjunction with cheaper, more attractive terminals) may help to stimulate significant market growth, but it remains to be seen whether this will enable all the MSS operators to deliver a return for their investors or whether we’ll see more of them “checking out” with a bankruptcy filing as ICO North America did in May this year.
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04.30.09
Posted in Globalstar, ICO/DBSD, Inmarsat, Iridium, LightSquared, Spectrum, TerreStar at 10:44 am by timfarrar
On Monday, the Wall St Journal revealed that Harbinger plans to push ahead with “a multibillion-dollar plan to build an international satellite-cellphone business” which would “complement existing cellular networks with satellite coverage, and…use new chips that could fit inside affordable, mainstream phones, keeping costs down for consumers”. This is quite different from the original plan of SkyTerra, TerreStar and ICO to build out Ancillary Terrestrial Components (ATCs) – basically a new terrestrial cellphone network using their satellite frequencies. Instead, subscribers will simply rely on their existing cellphone networks and only use the satellite services of these companies as a roaming partner when they are in uncovered areas. From that perspective, the new plan is much more similar to the business plans of Iridium and Globalstar in the late 1990s, that business travelers would rely on satellite networks to fill in the gaps in cellular coverage. For example, here’s a description from the Economist in June 1998:
“By far the largest number of subscribers is likely to come from the “cellular roaming” market. These are users of land-based cellular phones who want to be able to extend the range of their handsets when they are travelling through areas of poor or incompatible coverage. MSS subscribers will be equipped with a dual-standard phone that will switch to a satellite when a ground connection is unavailable (Iridium’s first offering is a soon-to-be-superseded $3,000 half-kilogram brick). Subscribers will pay a higher standing charge to their normal cellular operator and a premium on MSS calls. Numbering will not change and unified billing will be standard. This week Iridium said it had recruited 200 distribution partners among cellular companies.”
Of course there are many advantages that the new and very capable satellites being built by SkyTerra and TerreStar will offer over the 1990s technology of Iridium and Globalstar. Most obviously, the extra power and sensitivity of their satellites will allow the satellite service to be added to mainstream cellphones with little or no penalty in size and weight, as opposed to the ‘brick’-sized handsets produced by Iridium and Globalstar in 1998 and 1999. In addition, SkyTerra, TerreStar and ICO have signed agreements with Qualcomm to incorporate satellite technology into Qualcomm’s next generation cellular chipsets, which are likely to be used in a wide range of handsets.
However, there is a major difference between the principal sources of revenue for an ATC and a satellite roaming business plan. In the ATC case, a cellular operator would pay to lease the satellite spectrum to provide terrestrial services over a new terrestrial base station network, thereby enabling it to add capacity or new broadband services to its network. Satellite services, while available, would be a minor component of the overall revenue stream for the satellite operator. On the other hand, a satellite roaming business plan relies on the satellite services themselves to generate revenue, with perhaps some incremental benefit to the cellular partner through reduced churn, if the satellite service is sufficiently compelling to subscribers.
Even more importantly, the decision maker who will produce these revenue streams is very different: in the ATC case, it is simply a matter of convincing the cellular operator to lease the spectrum, whereas in the satellite roaming case, the end user must decide to buy the satellite service. Many people who were intimately involved in the launch of Iridium and Globalstar’s services remain convinced that it will be very difficult to explain the limitations of satellite service to a mass market: those services were sold as enabling coverage “anywhere”, and so there were numerous complaints about the inability of satellite service to work reliably in buildings, cars and urban areas. For most people, their experience of cellphone coverage limitations is in precisely these areas: in the Bay Area there are 375K riders of BART each WEEKDAY (where coverage in the underground parts of the transit system has only recently started to be deployed) compared to less than 200K visitors to Pinnacles National Monument each year (the location where we most recently spent an extended period of time outside cellular coverage). Remember also that even the new phones almost certainly won’t switch beween terrestrial and satellite modes in the middle of a call, so will likely drop an ongoing call if the user moves through a cellular (or satellite) deadzone. As the Wall St Journal explained in July 1999:
“At its core, Iridium is struggling with an incongruity between its design and its market ambitions. It was originally intended for millions of globe-trotting business travelers, and it was launched with a $180 million world advertising campaign last year aimed at that market. But when Motorola began operating the system on Nov. 1, the Iridium handsets weren’t powerful enough to work within buildings or urban areas. As a result, a vast network intended for a mass market was usable only by niche groups, such as mariners, oil-rig workers or the military. Iridium faces a tough struggle to cover its huge costs in such relatively small markets.”
Indeed there are about 150,000 Iridium and Globalstar satellite phone subscribers within these niche markets in North America at the moment, generating about $100M in retail service revenues per year (excluding international users like the DoD). New smaller, cheaper handsets from SkyTerra and TerreStar should increase the size of this “professional” MSS niche significantly (including amongst “police, fire and ambulance personnel”). In addition, a low cost “satellite backup” service might appeal to several million consumers, particularly in earthquake or hurricane-prone areas such as California or the Gulf Coast, if it is explained properly: as an emergency service for use outdoors in the event that other communications are unavailable. In order to achieve this level of take-up, cellular carriers will not only have to sign roaming deals with the satellite networks, but also ensure that satellite connectivity is included in the phones they sell and support large scale distribution of the phones themselves. Even then, it may be hard to explain properly: there were reports after Hurricane Katrina that first responders were unable to get their satellite phones to work, and it was later discovered that some were trying to use the phones in a basement conference room or inside the Superdome. Although gaining several million subscribers would be a great achievement for the MSS sector, in view of these challenges we remain skeptical that there will ever be “vast global demand for the network [Harbinger] envisions”.
In contrast, we are more positive about the long term potential of ATC: cellular operators will ultimately need more spectrum to cope with the surge in wireless broadband data demand and will use up the stockpiles of 700MHz and AWS spectrum which they have purchased in recent years. At that time ATC will be one of the most obvious sources of supplementary spectrum, and there is no technical reason why it can’t be made to work. Indeed many of the developments being put in place to enable satellite roaming (such as the Qualcomm chipset) are precisely those needed as a pre-requisite for ATC deployment. The only problem is how long it may take before major cellular operators feel a pressing need to use MSS spectrum for their terrestrial operations – it is likely to be several years off at a minimum. Indeed, if WiMAX struggles, then Clearwire’s spectrum may be sold off to other players, pushing out the timeframe in which ATC might be considered even further into the future.
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03.04.09
Posted in Globalstar, Handheld, Inmarsat, Iridium, LightSquared, TerreStar at 11:52 am by timfarrar
Its been revealed today that EMS has taken a $3.4M charge to terminate its work on the Inmarsat next generation satellite phone, and that Inmarsat will be assuming “more control over production phases of the product development”. This is the latest in a long line of setbacks for the ISatPhone, with the first generation phone failing to achieve any meaningful traction and repeated delays in completion of the next generation phone since Inmarsat acquired the ACeS customer base two and a half years ago.
In our view, a key reason for the failure of the original phone was its poor performance on the Inmarsat I4 satellite, with users advised to use a hands-free kit and keep the phone antenna pointed at the satellite! It remains unclear if EMS had solved these technical challenges with the new phone (which are caused by the smaller 9m antenna on the I4 satellites, compared to the 12m antennas used by Thuraya and AceS), and therefore it is quite possible that serious constraints may still apply to the usability of Inmarsat’s new handheld, a concept model of which is shown below. Certainly we expect that it will be difficult if not impossible for Inmarsat to ensure satisfactory handheld performance in Alaska and much of Canada.
The launch of the new phone had already been pushed back from early 2009 to the end of the year, with features such as packet data dropped to save time and money. Now it looks like Inmarsat will experience a further delay until well into 2010, and yet another increase in costs, adding to a development program which already totals around $100M. We will be looking with interest at whether Inmarsat maintains its stated intention to sell the phone for around $500 retail, thereby making it even harder to recover its investment in handset development. Notably, this price point has already met with pushback from potential distributors, who would be unable to realize the margins they make today on the sale of other satellite phones.
The clear winner is Iridium, who will have even more time than they had expected to capitalize on the lack of handheld competition from Inmarsat, and who managed to complete the development of their new 9555 phone on time and at a cost of less than $10M. Other current and potential satellite handheld providers, such as Globalstar, Skyterra and TerreStar, who have faced a barrage of criticism from Inmarsat in recent months, will also be rubbing their hands with glee at Inmarsat’s embarrassment.
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01.21.09
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Regulatory, Spectrum, TerreStar at 9:46 am by timfarrar
Last week, the FCC awarded ICO its ATC license, with no requirement to enter into a ground spare contract at this stage. Indeed ICO will only have to demonstrate 30 days before commencing ATC service that “firm arrangements are in place to meet the spare satellite requirement” within 1 year of service initiation. Of course, since a satellite would normally take around 2 years to construct, ICO would have to enter into a ground spare contract well before that 30 day notice period. However, ICO has gained considerably more flexibility to keep its expenditures to a minimum, while pursuing resolution of its litigation with Boeing and waiting for a more favorable economic climate in which to launch commercial service.
With this ruling, along with Globalstar’s ATC license grant last year, the FCC has shown a desire to be flexible in its interpretation of the ATC rules, so as to ensure that ATC deployments do eventually take place. Arguably, this flexibility has advantaged operators such as ICO and Globalstar, over TerreStar and Skyterra (formerly MSV), who have committed to considerably greater capital expenditure, based at least to some degree on a more cautious interpretation of the ATC requirements. Most notably, TerreStar is already well advanced with construction of its ground spare satellite, although we have heard rumors that work may have paused in anticipation of the ICO ruling, and (unless TerreStar gains a European license in the near future and decides to use the satellite there) we expect that construction will soon be formally suspended to save money, on the assumption that this will not impact TerreStar’s pending ATC application.
A future question for the FCC with regard to ATC “flexibility” may well relate to what level of satellite performance is needed to justify that an ATC service is truly “ancillary”. TerreStar and Skyterra have built very large and powerful (and expensive) satellites, in order to deliver voice and data connectivity to “standard” mobile devices without external antennas. ICO and Globalstar’s satellites are rather less capable (and cheaper), but if they are not required to deliver fully reliable handheld satellite voice services, then these satellites could also operate with “standard” mobile devices. For example, if the only test required is to complete a call from a handset on a tripod in an open field, with no head blockage or obstruction from trees etc, then a far less expensive satellite is required than if link margin is needed to overcome these obstructions and the call is made or received by a real person walking around with the phone.
Given that many hundreds of millions of dollars of satellite construction costs are at stake, it will be very interesting to see how the FCC ultimately decides this issue and therefore who has made the right call with their satellite design.
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