05.09.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 6:24 pm by timfarrar
Many epitaphs are being written today, and perhaps even a few pitches for book deals, bringing back memories of my comments to Bethany McLean for her Vanity Fair article two years ago. However, some apparently think the LightSquared saga has a few more chapters to be written, after Chairman Genachowski’s comments yesterday that “he expects LightSquared Inc. to eventually win approval for using its airwaves”. Since I actually asked him the question that prompted this statement (at the Jefferies conference) about what lessons he took from the LightSquared debacle (a characterization he disputed), I thought it would be useful to set the comment in context.
It was prefaced by the statement that Genachowski believed all satellite and broadcast spectrum was underused and should be reallocated for flexible terrestrial mobile broadband use, to meet the “obvious” spectrum crisis, and because of this “crisis” the L-band spectrum was “too valuable to be left unused”. Of course, he didn’t state any timeframe for action, and acknowledged that it was not possible to use the L-band spectrum without new receiver standards or similar changes to protect GPS (which will take years).
Recent actions, such as tomorrow’s NPRM on Qualcomm’s plan to use Ku-band satellite spectrum for Air-To-Ground communications and the effort to allocate C-band spectrum for small cells certainly bear out Genachowski’s lack of regard for satellite services, and so its not surprising that Globalstar has been urging him in recent days to move forward with an NPRM on its TLPS plan “prior to the Chairman’s expected departure later this month”.
In contrast, observers I’ve spoken with expect his successor, Tom Wheeler, to have a keen appreciation of the challenges associated with reallocation of spectrum, by virtue of his chairmanship of the FCC’s Technological Advisory Committee (whose February 2013 white paper on harm claim thresholds notably didn’t even mention attempting to solve the LightSquared/GPS conflict). I’m also told that given the battle that will take place with the DoD over gaining access to the 1755-80MHz spectrum for an auction next year, it is highly unlikely to be worth extending this fight to cover LightSquared/GPS as well.
So why was Sound Point, which is widely believed to be backed by Charlie Ergen, buying up LightSquared’s debt and preferred shares last month? After 3 days of meetings with dozens of investors in New York this week, I’ve been refining my view of Ergen’s plan for Sprint, Clearwire, LightSquared etc and will shortly be issuing the next update to last week’s report on DISH’s wireless ambitions. On the LightSquared front, what has emerged is that Sound Point has now acquired the majority of LightSquared’s Term Loan debt, and there appears to be reasonably wide consensus that both Ergen and Carlos Slim are backing Sound Point. I’ve also concluded that the near term focus is likely to be on the leverage that gaining control of LightSquared would give Slim to get a Mexican broadcast license, as part of a settlement with the Mexican government to resolve the dispute over spectrum allocation for MEXSAT. That could provide a windfall for Slim (and DISH Mexico) that is worth far more than the $600M-$700M that Sound Point has paid for what is likely to be a controlling stake in a reorganized LightSquared.
In those circumstances, there would be little point in Sound Point offering to buy out the rest of the term loan holders, and instead a debt for equity conversion of the LP Term Loan seems much more plausible. That would leave the remaining Term Loan holders with illiquid equity in an entity with only a very long term possibility of owning valuable spectrum (assuming that any further payments to Inmarsat can be deferred indefinitely until terrestrial usage rights can be established in the L-band) and perhaps some optionality based on future litigation. That might come as a big shock to those who believe that the only outcome is that the Term Loan will get taken out at par plus accrued interest, because of how important LightSquared’s spectrum assets are to Ergen!
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05.01.13
Posted in LightSquared, Operators, Regulatory, Spectrum at 4:27 pm by timfarrar
Its interesting to see that two papers have recently emerged focusing on the loss of LightSquared’s spectrum “rights”. One of these, by Lenard and White of the “Technology Policy Institute” is little more than a puff-piece for LightSquared, apparently paid for by the company (the bills submitted by LightSquared’s lawyers document their meetings with the “economist” writing a paper for them), though the authors never state that this is the case. This report was released on Tuesday (April 30) as LightSquared attempts to ramp-up its PR efforts once again in the wake of the FCC granting LightSquared the Special Temporary Authorization it has been seeking for the last two months to test LTE in the 1675-80MHz band (apparently a farewell gift that Chairman Genachowski decided to leave on his successor’s desk).
The Lenard and White paper uncritically recites LightSquared talking points, without any understanding of either MSS or GPS services, and simply recommends that the FCC do as LightSquared requests. There is no mention whatsoever of MSS providers such as Inmarsat and Iridium (implying instead that LightSquared and Globalstar are the only licensees of the L-band and Big LEO band spectrum), and bizarrely the paper asserts that for the last 25 years the MSS spectrum “was, for all practical purposes, unused”. Similarly for GPS, the paper simply asserts that the “least cost option” would have been for LightSquared to have been allowed to go ahead, leaving “individual GPS owners” to be “responsible for retrofitting or replacing their GPS devices so that they would work properly”. Of course, no mention is made of the use of GPS in aviation and the timeline and costs involved in changing out safety critical equipment.
A more serious academic paper was issued the previous week by Hazlett and Skorup of George Mason University, which makes some broadly similar points, but comes to a rather more nuanced conclusion. However, this paper also suffers from similar defects, particularly when it dismisses the cost estimates attributed to GPS disruption by asserting that “Simple Coasian analysis establishes this [$10B LightSquared license] valuation as a cap on costs to GPS users” because the “cost of any “harmful effect” is “bounded by the most efficient (least costly) mitigation technology” which would be buying LightSquared’s license. The “cost estimate” of “an astounding $245 billion” (and the similar estimates by the FAA of $60B for aeronautical users) is of course nothing of the sort, it is a loss of social welfare benefits to GPS users if GPS service was rendered unusable. Hazlett and Skorup assert later in the paper that that “easily more than $100 billion in social losses [were caused] by pre-empting the creation of new LTE band” without apparently any thought that their purported $10B cap should obviously bound these losses in exactly the same way (as an aside the $10B number was actually the windfall to LightSquared from the FCC’s waiver, not the value of the licenses themselves). If it does not bound either estimate, then of course Hazlett and Skorup are implying that the social loss of “a new LTE band” is less than the social loss that would be caused by eliminating GPS service (which hardly seems surprising given that there are many other LTE bands available), but the question of what approach minimizes the overall social losses (e.g. requiring many years of transition) is left completely unresolved.
More importantly, Hazlett and Skorup then go on to compare the situation between LightSquared and GPS (which they describe as a “tragedy of the regulatory commons”) with what they suppose was the “successful rationalization of the L-band” achieved between LightSquared and Inmarsat, in the form of the December 2007 Cooperation Agreement, which supposedly resolved the “severe in-band interference problems”. This meant that “the FCC did not test radios, seek more clarity of “harmful interference,” or determine what reliability level Inmarsat’s customers would receive due to potential “harmful interference” from LightSquared’s operations. They trusted the parties to make efficient choices with respect to these concerns.”
Of course, while that interpretation might accord with LightSquared’s portrayal of the Cooperation Agreement, it is far from reality. Up until 2007, independent of the interference disputes, LightSquared’s predecessor (MSV) and Inmarsat had been engaged in a series of disputes over 3MHz of spectrum that MSV had previously loaned to Inmarsat and which Inmarsat was keen to retain for its new I4 MSS services (note that the previous year, when Inmarsat was unable to reclaim spectrum that it had loaned to Thuraya, Inmarsat was forced to suspend certain services in the South Atlantic ocean). By signing the Cooperation Agreement, Inmarsat was granted the right to retain this “disputed” spectrum until MSV raised funding to pay Inmarsat the spectrum lease fees due under the agreement, and if MSV defaulted (which was seen as the most likely option at that time, given the enormous amount that would need to be paid to Inmarsat), Inmarsat would retain the disputed spectrum in perpetuity.
When MSV actually secured substantial further investment from Harbinger, I understand that Inmarsat came to the conclusion after internal testing and analysis, that there was no chance that the deployment of MSV’s network would actually happen, under the parameters agreed in the Cooperation Agreement, because of the interference that would be caused to GPS systems. As a result, Inmarsat decided that even if LightSquared did actually initiate payments under the Cooperation Agreement (Inmarsat was to be paid $250M to cover its costs for fitting filters to its own terminals in addition to other very substantial rebanding and lease payments), there was no point in rushing to develop and fit these filters. Indeed the process required to gain regulatory approval for new aeronautical filters was sufficiently long that approval wouldn’t even be possible until 2013 or beyond. The Cooperation Agreement was cleverly worded: Inmarsat was given absolute discretion to simply replace the affected terminals if LightSquared’s network was ever deployed, and so Inmarsat simply banked LightSquared’s payments, and incurred virtually no costs. Then in April 2012, with the deployment of a new MEXSAT system on the horizon, Inmarsat kept the Cooperation Agreement in place, because of more subtle wording which requires LightSquared to hold Inmarsat harmless from any requirement to give spectrum back to the Mexican government when MEXSAT becomes operational.
All of that hardly seems to be a “successful rationalization of the L-band” as Hazlett and Skorup suggest. It sounds to me more like a sophisticated player (Inmarsat) taking advantage of another operator that is desperate to have some agreement to show to a gullible hedge fund manager, so that he would invest more money to keep them afloat.
I guess at least from that point of view it was successful for MSV’s then-management, because Falcone proceeded to commit a further $600M in the following seven months to complete and launch the MSV satellites, presumably taking advice from his due diligence advisers (who I’m told specialized in analyzing “fast food restaurants”). My guess is that by the time the GPS problems became apparent to Harbinger, all their money had been spent, so all that was left was to persuade other hedge funds to put their money in alongside Harbinger’s and try to keep up the pretense that all was well. After all, LightSquared’s CEO repeatedly told investors that GPS was not a problem, so that more money could be raised, when it was clear to me and others that was simply not the case.
The real question is when LightSquared came up with the end game of litigation or a spectrum swap to escape from this self-inflicted debacle. Was Falcone so delusional that he thought it wouldn’t matter if there was interference to the GPS system? Or was he expecting compensation from the government all along, once Harbinger’s money had all been spent in 2009?
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04.12.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 10:18 am by timfarrar
The FCC’s proposed FY2014 budget, released on Wednesday, now appears to have sounded the death knell for LightSquared’s September 2012 spectrum swap proposal, that it should be granted access to the 1675-80MHz band, in exchange for giving up “rights” to deploy a terrestrial network in the 1545-55MHz downlink part of the L-band. Instead, the budget proposes that NOAA’s radiosondes should be relocated (presumably to the 400-406MHz band which is also used by weather balloons) and that the 1675-80MHz should then be repurposed using “either auction or fee authority” in 2017 to raise $230M.
This news seems to confirm what happened at the February 20 meeting between the FCC and LightSquared’s lawyers, is that the FCC told Latham & Watkins that they were going to propose reallocation of the 1675-80MHz spectrum for commercial use, but would deny the requested spectrum “swap”, so LightSquared would have to bid in an auction just like anyone else. Although the FCC has not yet issued a ruling (perhaps to avoid tarnishing Chairman Genachowski’s recent speeches about his legacy), release of an order may now be quite close, given the public disclosure of the FCC’s intentions in this week’s budget document.
That presumably explains why Latham & Watkins considered withdrawing LightSquared’s application for access to this spectrum, and why the FCC has basically ignored LightSquared’s March 5 application for experimental authority to test relocation issues. It also suggests why LightSquared has since focused on lobbying Congress, presumably with a view to pushing legislation to amend the FCC’s final budget authorization.
In a statement to Communications Daily (who first reported this issue), LightSquared continued its usual practice of pretending that all is well, asserting that “What happened today is certainly consistent with our filings” because there would be costs associated with any “sharing agreement”. However, even if LightSquared did pay $230M for the spectrum (and I find it hard to conceive that the FCC would simply award the spectrum to LightSquared if other operators want to bid on it at auction), the 2017 allocation date is obviously far too late for LightSquared to proceed with its fantasy of an LTE network buildout.
UPDATE 3 (4/13): LightSquared’s ex parte for an April 3 meeting with Commissioner Pai indicates a different (and more telling) story, going back to LightSquared’s generic appeals from 12 months ago about the “compelling need to find spectrum-based, technical, legal, or other solutions to the current issues” and abandoning the 1675-80MHz proposed “swap”. Notably, this ex parte was not even filed in IB Docket 12-340, relating to LightSquared’s September 2012 request to modify its ATC Authorization, which would have been required if the 1675-80MHz “swap” was part of this discusssion. Instead LightSquared is now apparently going back to its demand for “regulatory approvals” to move forward with its original L-band plan and threatening legal action if that is not forthcoming.
Given the Mexican coordination issues, the implausibility of LightSquared gaining any more spectrum for free, and the potential costs for continuing LightSquared’s Cooperation Agreement with Inmarsat after March 2014, its fascinating to see how much excitement has built in the distressed debt community in the wake of the WSJ’s report last week that Sound Point had been buying up LightSquared’s debt and preferred stock. That is despite the fact that several large holders in the Ad Hoc Secured Group (not just Fortress) have now exited their positions.
I’m told that a target valuation of 130 cents on the dollar for LightSquared’s LP Term Loan debt is now being floated by some people, based on an assumption that Ergen would convert the secured debt to equity. Even if one believes that Ergen will get involved (as opposed to using LightSquared as a bluff to secure a deal with T-Mobile, MetroPCS, CLWR or Sprint), then that seems excessive, given that buying out the TL debt at par plus accrued interest would only give a valuation of 115 cents on the dollar at present, and any bankruptcy auction will presumably look a lot like TerreStar, where DISH bid just enough to buy out the secured debt (including Echostar’s holdings) at par, just as DISH would presumably buy out Sound Point and other holders for cash at par in a LightSquared auction.
After all, DISH has $10B in cash, and potentially not much to spend it on right now. Any DISH deal with T-Mobile would most likely have come before the recent price adjustment to TMO’s MetroPCS bid (not least because it would have made it more difficult for Paulson and PSAM to hold out for alternative suitors), and a counterbid for MetroPCS is harder now that MetroPCS’s stock price has risen. Similarly, a potential deal with Clearwire seems to be slipping away, as it takes more money from Sprint, despite the efforts of Crest to block Sprint’s bid.
UPDATE (4/12): News is now emerging that DISH approached DT about a potential merger with T-Mobile a few weeks ago, likely in late March when I reported rumors of a possible deal after DISH’s stock price surged. However, DT reportedly wants to wait until after the MetroPCS merger closes and it has determined whether a merger with Sprint is feasible, which explains why nothing has happened yet. DISH’s case has therefore been immeasurably strengthened by the DOJ’s filing yesterday with the FCC, which highlighted its commitment to competition in the wireless market (presumably through maintaining the current four player market).
What would be the form of a DISH deal with TMO? The four possibilities are:
a) a joint venture (like Clearwire) which wholesales capacity to DISH, TMO and potentially other players
b) a hosting agreement (like Sprint and LightSquared) with TMO taking payment in the form of capacity
c) an investment by DISH in T-Mobile (like Softbank and Sprint) through the contribution of cash and spectrum in exchange for a majority equity stake
d) a full merger of DISH and T-Mobile.
Of these, I think the first can be ruled out, for the same reasons that Clearwire has had so many problems: TMO would take most of the capacity, so would have too much influence, and it would have an incentive to only use the JV capacity after exhausting its own resources. The second can also potentially be ruled out, simply because the deal would have to be more advantageous to DISH than the LightSquared-Sprint agreement: TMO would cover most of the costs and take payment in capacity, not cash, and then DISH wouldn’t need $10B in cash. The fourth option is probably also less appealing (as DISH has hinted previously), because DT might insist that Ergen gives up the dual class share structure which gives him tight control over DISH, and the synergies between DISH’s satellite TV business and T-Mobile’s wireless business are far less compelling than a merger between DISH and AT&T (with its fixed line and U-verse business) would have been. If DISH stays as a separate company then a merger with DirecTV also remains a possibility, perhaps with DISH’s T-Mobile stake being spun off to Ergen if DirecTV buys out DISH.
So the third option sounds like the most plausible, and the question is whether Ergen can purchase a majority stake in a merged T-Mobile/MetroPCS in exchange for $10B in cash and potentially $8B to $10B in contributed spectrum value. This becomes a harder task after the MetroPCS merger goes through and the merged company has a larger enterprise value (estimated at $28B-$30B by BTIG). However, depending on the remaining debt load after DISH’s investment, it still seems like a reasonable objective. Having a public market valuation for T-Mobile also makes DT’s decision about what share of the company DISH would receive a lot more transparent.
Of course, this new development also makes it rather more reasonable to regard a potential DISH bid for LightSquared as another bluff by Ergen, or at the very least a far less attractive fallback option (and if you think a deal might still be done with LightSquared as well as T-Mobile, note that DT is currently embroiled in its own LightSquared-like ATC scandal in India, with some of the original SkyTerra investors). It also confirms that DISH has moved on from its interest in Clearwire, and will most likely just look to cash in its sizeable profits (of up to $300M) on Clearwire’s debt when the Sprint merger eventually goes through.
UPDATE 2 (4/12): Clearwire has filed a proxy statement this evening, noting that it was approached by Party J, a strategic (i.e. non-financial) buyer, earlier this week with an offer to buy 5B MHzPOPs “in large markets” for $1.0B-$1.5B minus the NPV of the associated lease payments. Given the NPV of Clearwire’s lease payments is $1.8B of which I’d guess at least two-thirds is in large markets, and 5B MHz POPs would be around half of the leased spectrum in these markets (assuming this is the top 100M POPs in the US), that would mean a deduction of $600M or more, leaving a net price of ~$400M-$900M.
Walt Piecyk at BTIG thinks that Party J might be Ergen once again and I tend to agree (perhaps this approach is through Echostar?). It would fit with the move on LightSquared last week as another effort to establish a potential backup to T-Mobile, by persuading Clearwire stakeholders to hold out for more money and reject the Sprint bid. Clearwire seems to be hinting that it will file for bankruptcy on June 1 if the Sprint bid is rejected and that would also provide Ergen with far more options in the event that he can’t pull off a deal with T-Mobile, because of his substantial holdings of Clearwire debt. However, given the difficult relationship between Sprint and DISH and the numerous challenges associated with LightSquared, both look far less attractive options than a deal with DT for DISH to invest in T-Mobile.
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04.05.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 4:01 pm by timfarrar
That’s an interesting question after the WSJ reported yesterday that Sound Point had now acquired over $600M of LightSquared’s $1.7B LP secured debt. Speculation has been rampant once again that Ergen is behind this move, which involved buying all of Fortress’s $161M of LP secured debt (as the WSJ noted – indeed if Sound Point now owns over $600M of secured debt, then it must have bought around $100M of secured debt elsewhere in recent weeks, as Providence only owned $7.4M of this debt), but I was told also Fortress’s $87M and Providence’s $38M of LP Preferred Units. The secured debt was apparently bought at par, and the preferred units at 95 cents on the dollar, and assuming the Preferred units turn out to be the fulcrum security, this $125M will give the owner over 80% of the $164.6M that is outstanding in the LP Preferred class, and potential control over LightSquared’s bankruptcy reorganization plan.
Most people appear to believe that Ergen is behind Sound Point’s investment, despite the doubts that were expressed by people close to the situation last May. The fact that the deal was apparently struck immediately after the end of Q1 (and therefore any public company, such as DISH, would not have to reveal a substantial stake until the second quarter 10-Q in August) might support that possibility: although DISH could not hold the LightSquared LP debt itself due to limitations in the debt agreements (and therefore Sound Point would be the vehicle for this investment), Ergen might well decide to acquire the preferred stock through DISH, to give him a direct voice in proposing a bankruptcy reorganization plan after July 15.
However, it remains an intriguing question as to whether Carlos Slim has any involvement, given the challenging Mexican coordination issues facing LightSquared, which the company has reluctantly acknowledged by hiring a Mexican law firm this week to “ provide legal services with respect to LightSquared’s activities and/or negotiations in Mexico and with Mexican authorities”. After all, it hardly seems likely that Ergen would want to take on the major challenge of making LightSquared’s spectrum usable, without some sort of arrangement in Mexico, if a large part of the spectrum could soon be lost to the MEXSAT system.
Incidentally, further confirmation of LightSquared’s difficult February 20 meeting with the FCC has also emerged in the $271K invoice and February billing records submitted by Latham & Watkins a couple of weeks ago: there was no preparation for this meeting until the day of the meeting itself (implying that the lawyers were summoned by the FCC, rather than arranging the meeting on their own initiative), and the meeting was billed as related to ATC licensing, not to 1675-80MHz sharing issues (which was how LightSquared’s ex parte filing characterized the discussion). More importantly an associate was then immediately tasked to “research and analyze FCC opinions and orders related to the dismissal and withdrawal of applications at the request of applicants”, implying that LightSquared was so concerned about the possibility of an imminent rejection by the FCC that it contemplated pulling its September 2012 application. The lawyers then switched immediately to focus on “draft[ing] legislation” and “talking points regarding license mod advocacy” for LightSquared’s government relations team to push at “[Capitol] Hill meetings”. They also appeared to drop the analysis they had been working on with an “economist”, in favor of exploring the hiring of a new “consultant”, presumably to reflect their new emphasis on trying to go around the FCC.
Given all these issues, another possibility is that a further investment in LightSquared is a relatively cheap signal to T-Mobile that Ergen still has alternative ways forward to make his spectrum assets more valuable, even if the possibility of a deal with Clearwire seems to be fading. After all, as I wrote a couple of weeks ago, T-Mobile could secure a deal with DISH as a way to make it clear to MetroPCS shareholders that staying independent is not a good alternative to the T-Mobile merger. It certainly seemed that a DISH-TMO deal of some sort could be close at that point, but T-Mobile’s event the following week focused instead on its new no-contract pricing plans and initial LTE network launch.
However, after the recommendations by two proxy advisory firms that MetroPCS shareholders should reject the merger, T-Mobile is now considering whether to change the terms of the deal, and one way to do that might be to bring DISH into the picture. Certainly T-Mobile’s partnership offer to DISH ought now to be more attractive than it was a couple of weeks ago, but if it is still unacceptable to Ergen, I could envisage DISH making a bid for MetroPCS before the April 12 merger vote, using the $2.3B it raised this week. In that context, any takeover of LightSquared certainly ought to be seen as a fallback option for DISH, which need not even be considered until the situation with T-Mobile and MetroPCS has been resolved one way or another.
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03.21.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 4:12 pm by timfarrar
According to Wikipedia, “In financial circles, the Mexican standoff is typically used to connote a situation where one side wants something, a concession of some sort, and is offering nothing of value”. That’s presumably how the FCC feels about LightSquared’s request for a so-called spectrum “swap”, as I noted last month when the FCC’s General Counsel summoned LightSquared’s lawyers to tell them that there was no way LightSquared would get access to the 1675-80MHz band for free. LightSquared’s lawyers were forced to promise that the company would at least pay for relocation of NOAA’s radiosondes “consistent with the Commission’s emerging technology” doctrine.
The FCC must therefore have been even more annoyed when LightSquared followed up this meeting with a request for an STA to conduct four months of tests to examine radiosonde relocation, and essentially stated that NOAA should pay for the relocation itself. In particular LightSquared asserted that “continued use of this [1675-80MHz] band by radiosondes may not be compatible with the expected operation of the new GOES-R satellite system that is expected to be deployed in the next few years” and so “the modification of current radiosonde operations in and around the 1675-1680 MHz band…is required by the “downshift” of a portion of the GOES-R satellite downlink channels”. Given that NOAA has spent five years studying this “downshift” to free up the 1695-1710MHz band for auction (in that case to raise money for the government) and has never indicated that relocation of radiosondes out of the 1675-80MHz band is required by this downshift, that is quite a remarkable assertion for LightSquared to make, and is all but guaranteed to alienate NOAA as well.
As a result, a cynic might conclude that LightSquared’s attempt to obtain a four month testing window is intended to delay any negative ruling from the FCC until after LightSquared tries to convince the bankruptcy court that they are well positioned to secure the spectrum they need, and persuade the judge to allow them to cram down the LightSquared LP debtholders, on the grounds that Harbinger’s equity is supposedly still “in the money”. Indeed, the FCC may well be tempted to consent to LightSquared’s request, in order to push out any litigation beyond the end of Chairman Genachowski’s term in office.
However, there is yet another, potentially even more serious, Mexican issue looming on the horizon (which will quite possibly emerge before mid July), namely the MEXSAT-1 satellite that Boeing is constructing, which is scheduled for launch at the end of 2013 or early in 2014. As I noted in December 2010, when the MEXSAT order was placed, after the MEXSAT launch, LightSquared will no longer have “any authority to share spectrum with [Mexico's planned next generation] system in the absence of coordination”.
I’m informed that as part of this new coordination agreement, the Mexican government will now demand the right to use one third of all L-band spectrum in North America for the MEXSAT-1 and 2 satellites, based on Mexico’s huge $1B investment in this system. This amount (~22MHz in total) is of course far more than Mexico’s current allocation for its older satellites. However, LightSquared’s Cooperation Agreement with Inmarsat guarantees that Inmarsat will be held harmless from any future reallocation of spectrum to Mexico, and thus all of the additional spectrum demanded by the Mexicans would have to come out of LightSquared’s allocation. That quite possibly explains why Inmarsat wanted to keep the Cooperation Agreement in place last April, while suspending further payments by LightSquared for two years, because now Inmarsat won’t have to give up any spectrum at all to Mexico. It might also indicate why Carlos Slim was rumored to be interested in LightSquared, although given recent developments, Slim might now have bigger issues to worry about in Mexico.
UPDATE (3/21): Here is a description of the MEXSAT system, confirming that it will need at least 15.4MHz of L-band spectrum (2.2MHz per beam, 7 color re-use) to operate as designed.
LightSquared could potentially reject the Mexican request, which would result in a return to the status quo under the original Mexico City L-band coordination agreement from the late 1990s. However, then the L-band would be broken up into small chunks, with the Mexican spectrum (which is largely in the lower L-band where LightSquared wants to operate terrestrially) preventing LightSquared from gaining any contiguous 5MHz blocks of spectrum that could be used for an LTE network deployment. In adddition, LightSquared would have no right to generate any interference whatsoever into the Mexican system from its terrestrial operations.
In other words LightSquared’s L-band MSS spectrum assets now run the risk of either becoming either completely worthless or at the very least being significantly reduced, perhaps to as little as 10-15MHz in total (excluding the spectrum leased from Inmarsat). This of course makes it far less plausible that DISH would be willing to countenance using LightSquared’s spectrum (for uplinks) in conjunction with its own AWS-4 spectrum (for downlinks), as LightSquared’s debtholders hope. After all, harking back to another long ago post of mine, it seems DISH has a pretty good understanding about “which of DBSD/TerreStar, Clearwire and LightSquared” turned out to be “the good, the bad and the ugly”.
ADDENDUM (3/23): Apart from its spectrum, LightSquared’s other assets mainly consist of its two new satellites, SkyTerra-1 (in orbit) and SkyTerra-2 (still on the ground). Many assumed that the SkyTerra-2 could be sold to Boeing, for use in the MEXSAT program (since MEXSAT-1 and 2 are very similar to SkyTerra-1 and 2). However, I’m told that it is now far too late for that, as the MEXSAT-2 build is already well underway, and so it is likely to be even more difficult to raise money from the sale of LightSquared’s satellites.
Another option for LightSquared has always been its supposed litigation claims against the FCC. I understand that LightSquared believes it has some communications in its posession which would make this case a “slam dunk”, and so it expects to succeed in extracting concessions from the FCC, including the purported spectrum “swap”. However, note that the Mexican coordination is formally a government to government agreement (with the FCC at least in theory responsible for negotiating on behalf of LightSquared). Thus, I wonder how much leverage LightSquared currently has with the FCC, when a negative outcome (or simply no progress) from the coordination negotiations would likely ruin LightSquared’s prospects of deploying a terrestrial network in the L-band. In particular, LightSquared’s ATC licenses from the FCC could then potentially become useless, even without further action on the GPS-related issues, based on LightSquared’s acceptance of the FCC’s (separate) March 2010 Mexico re-use approvals. This might even provide a convenient way for the FCC to park the GPS issues, while completely avoiding any liability to LightSquared.
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02.23.13
Posted in Globalstar, LightSquared, Operators, Regulatory, Spectrum at 12:16 pm by timfarrar
Yesterday, two interesting pieces of news emerged relating to LightSquared’s proposal that it should be granted “shared” access to the 1675-80MHz band in exchange for giving up “rights” to operate a terrestrial network in the 1545-55MHz spectrum block, which is closest to GPS and caused the biggest concerns during the 2011 testing.
The first of these was the GAO report on options to improve receiver performance mandated in the JOBS bill last February in response to the LightSquared debacle. Both this report and an associated paper by the FCC’s Technical Advisory Committee (TAC) published earlier this month suggest that the FCC should do more to explore setting “harm claim” thresholds at which receiver manufacturers could assert that a new service was causing interference. Spectrum bands in which these thresholds could be trialled are identified, but unfortunately for LightSquared, no mention is made of the L-band/GPS band boundary (and the rationale given for selecting a trial band appears to suggest that the LightSquareed spectrum would not be a good candidate for initial experimentation).
Instead, one of the leading candidates is Globalstar’s proposed S-band TLPS service, which perhaps explains Globalstar’s confidence that the FCC will soon move forward with an NPRM, despite the opposition Globalstar faced from the WiFi community, Clearwire and others in response to the TLPS proposal. On the other hand, the fact that such a proceeding would be an experiment to try and determine an appropriate interference threshold may well mean it would still be very difficult for Globalstar to undertake any large scale deployment in the near term or receive approval by the end of 2013 as Globalstar hoped.
The second, and more significant, development was an ex parte filing by LightSquared which documented a meeting on Wed Feb 20 between LightSquared’s regulatory lawyers and the FCC’s General Counsel and the Acting Chief of the FCC’s Office of Strategic Planning. Curiously, this meeting didn’t involve any technical personnel, despite the fact that the “much of the discussion” focused on “the proposed shared use of 1675-1680 MHz spectrum”. That seems to imply that the FCC was focused on the political problem associated with any perceived spectrum “giveaway” and appears to be confirmed by LightSquared’s offer that it would undertake “relocation of NOAA’s radiosondes…in a manner consistent with the Commission’s emerging technology and other applicable precedents”. In other words LightSquared offered to pay for this relocation.
Even that may prove insufficient, given that LightSquared’s proposed “sharing” with NOAA (based on exclusion zones around certain satellite receiving stations, after relocation of the radiosondes) actually involves even less sharing than will be needed in the 1695-1710MHz band, which has now been confirmed by NTIA as being suitable for auction. In the 1695-1710MHz band there will be protection zones around 18 satellite downlink sites, significantly more than the four locations (Fairbanks, AK, Wallops Island, VA, Suitland, MD, and Greenbelt, MD) that LightSquared would have to protect in the 1675-80MHz band.
As a result, it seems that the development of rules for interference limits at the L-band/GPS boundary is unlikely to be a high priority in the immediate future, and there are still major roadblocks to any spectrum “swap” involving the 1675-80MHz band. We will apparently soon see how much LightSquared is offering to pay for relocation of NOAA’s radiosondes, but if this spectrum is deemed just as suitable for auction as the 1695-1710MHz band, then that may be far from sufficient.
LightSquared now has a deadline of May 31 to come up with a plan to emerge from bankruptcy and after July 15 it will lose its exclusivity to propose a plan. However, if the FCC continues along the lines indicated yesterday, the main asset of the estate may end up being its legal claims, whether against Harbinger or the FCC.
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12.27.12
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum, Sprint at 3:20 am by timfarrar
Now that DISH’s attempts to bid for MetroPCS and do a deal with Clearwire appear to have been stymied by T-Mobile and Sprint respectively, the obvious question is what is Charlie Ergen’s Plan C? After all, last week DISH raised another $1.5B in a debt offering, “to be used for general corporate purposes, which may include spectrum-related strategic transactions”.
I’ve wondered if DISH has many options left other than to sell to AT&T, but it now appears that Ergen may have other plans, which are likely to be revealed within the next three weeks. After all, DISH asked the FCC to extend the comment period on the Sprint-Softbank deal until January 21, and DISH has 30 days from the publication of the AWS-4 Order on December 17 to decide whether to protest the proposed license modification.
While it is possible that Ergen could use the $1.5B that DISH has raised to mount a counterbid to either Sprint’s takeover of Clearwire, or T-Mobile’s takeover of MetroPCS, others think he is contemplating use of the money for a potential H-block bid, in order to persuade Sprint to enter into a more attractive hosting agreement. However, there is a far more intriguing possibility, which could explain why Sound Point started buying up more LightSquared debt at precisely the time when Clearwire decided to go with Sprint instead of DISH’s offer. That is an attempt to buy up all of LightSquared’s first lien debt, followed by a battle to oust Falcone when LightSquared current exclusivity (to propose a plan for emergence from bankruptcy) expires at the end of January.
Then DISH could propose in mid January that the AWS-4 uplink spectrum is instead converted to downlink spectrum (in line with a suggestion made by the FCC back in March), and LightSquared’s uplink spectrum would be used to provide an alternative uplink.
That would be logical, because it will be years before LightSquared is able to use its L-band downlinks, and the 1675-80MHz band is unlikely to be given away to LightSquared for nothing (as opposed to being auctioned). It would also make the full 20MHz of AWS-4 uplink spectrum usable for downlinks, and make an H-block counterbid by DISH far more plausible, because the H-block downlink (1995-2000MHz) could be combined with the AWS-4 spectrum between 2000-2020MHz, putting Sprint under further pressure. The FCC might also like to see the risk of litigation with LightSquared being taken off the table, as well as the prospect of higher bids for the H-block, even if the end result was a further delay in deployment of the AWS-4 spectrum.
Why would Ergen choose this risky path, with its inherent delays in buildout, rather than a simple sale of spectrum to AT&T at this point in time? Presumably AT&T has not yet made a knockout bid to buy the AWS-4 spectrum, while if DISH gained additional downlink spectrum adjacent to the G and H blocks, it would be far better positioned to strike a deal with Softbank to provide auxiliary downlinks for Sprint’s LTE network if AT&T doesn’t come to the table.
In addition, because Sprint is tied up with Softbank (and Clearwire) and T-Mobile with MetroPCS, there are few good partnership options available that would enable DISH to pursue a network buildout at the moment. The FCC has given Ergen 4 years for the initial AWS-4 deployment and even if that deadline is missed, the full buildout (to 70% of the population) can be undertaken in 6 years.
As a result, DISH has little to lose by taking some time to explore alternatives, seek to build up even more valuable spectrum assets, and hope that an attractive deal emerges for either a sale or network buildout in a year’s time. If DISH does go down this path, then LightSquared’s bankruptcy case, which has largely fallen off the radar screen in recent months, could be about to get very interesting.
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12.06.12
Posted in DISH, LightSquared, Operators, Regulatory, Spectrum at 12:34 pm by timfarrar
No not his assertions that “I still believe that we had a great, and we still do have a great vision” and that “a bankruptcy would not necessarily wipe out the equity holders of LightSquared because the spectrum it owns retains value”, which look like they are moving even further away from being realized as time goes on.
LightSquared’s latest plan is to relinquish terrestrial rights in part of its L-band spectrum in exchange for the right to use additional government spectrum used by NOAA. However, I’m told that although NOAA may be prepared to allow terrestrial use of the 1675-80MHz spectrum band (subject to payment of relocation costs to move their radiosondes to the 401-406MHz band), LightSquared’s plan may now be derailed by the apparent intention of Congress to mandate an auction of “at least 15MHz” of spectrum in the 1675-1710MHz band, thereby requiring LightSquared to buy this additional spectrum at auction rather than being given (what they are portraying as) a “swap”.
After all, most Democrats appear to have concluded that “What happened to LightSquared is disappointing…But unfortunately that ship has sailed”. NOAA would presumably also like to maximize the auction proceeds to fund the relocation of its other systems in the 1695-1710MHz band which will also be auctioned as (lower value) uplink spectrum. As a first step, NOAA’s position may become clearer next week once the initial comments are filed in response to LightSquared’s petitions for rulemaking.
What I’m actually referring to in the title of this post is Phil’s comment on my blog post back in August 2011 that “Everyone knows Ergen is not going to build out a network. No one trusts him, including the FCC. They are not going to put their eggs in that basket because they know he will make them look foolish.”
That does appear to be a pretty good summary of the underlying rationale behind the FCC’s draft AWS-4 Order, circulated just before Thanksgiving, because the Order does not impose any anti-windfall conditions that would stop DISH from selling the spectrum to another operator, but instead attempts to mitigate this windfall (a concern the FCC is acutely sensitive to) by ensuring that the proceeds of an H-block auction can be maximized. If sold to existing operators, then the 50MHz of spectrum in AWS-4 and H-block combined would help to preserve the current four player wireless market in the US and would also mean that (as the FCC Chairman’s former advisor put it this week) “we’re not in the rush we originally thought” to address the purported spectrum crunch.
Despite this encouragement to cash in, DISH objected to the draft order, with Ergen appealing in person to each of the five Commissioners to make changes. However, the FCC fired back at DISH and has now scheduled the order for a public vote at the meeting on December 12, sending a signal of unanimity to DISH, and perhaps also discouraging any Commissioners who might be wavering from taking a position that would increase DISH’s potential windfall at the expense of H-block auction proceeds for the Treasury. Sprint has maintained its opposition to the latest changes proposed by DISH, and appears to have been successful in fending off any modification to the original draft (if Sprint was losing ground then I would have expected to see more vocal objections, as opposed to the current strategy of providing behind the scenes briefings and a rather non-specific ex parte filing).
Thus I’m left wondering whether DISH will now be persuaded that its best interests lie in selling out (especially given the diminishing number of available partners), or if instead DISH will continue to fight with the FCC (and challenge the legality of the Order as outlined in last week’s ex parte filing), potentially holding up the deployment of both AWS-4 and the H-block?
Could Sprint have designs on the AWS-4 spectrum as well (after all, Ergen is known for fighting vigorously right up to the time he does a deal with an opponent), or will it simply want to take advantage of disposals that AT&T would be forced to make after buying DISH’s spectrum? We should know more about Ergen’s intentions very soon, and Sprint’s proxy filing, now delayed until December 21, should make even more interesting reading than that of MetroPCS, because it will have to reveal if discussions have been going on with DISH behind the scenes over any potential deals.
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10.16.12
Posted in LightSquared, Operators, Regulatory, Spectrum at 12:30 pm by timfarrar
Today the House Energy & Commerce Committee has released the documents from last month’s hearing, which makes for some interesting reading.
For one, its intriguing that the FCC Chief Economist (on p33 of the PDF) highlights “just how lucrative ATC service could be”, noting that “an entrepreneur that purchased a mobile satellite property wth 34 MHz of ATC-eligible spectrum and successfully rolled out ATC service in partnership with a CMRS incumbent could obtain a rent of $11 billion, equal to the difference between the value of the spectrum ($12 billion) and the cost of developing the required satellite system ($1 billion).”
That $12B valuation of course is the same as LightSquared’s economic consultants used, back in June 2011, to estimate that the January 2011 waiver was worth $10B to LightSquared. The documents also indicate (p10 of the PDF) that the FCC Chairman was warned in September 2009 about the “equity considerations of providing a ‘windfall’ to companies who did not acquire the licenses at auction” and even at that time “changing the ATC handset requirements” was under discussion.
However, far more interesting are the details of the discussions over the extension to the very short comment period on the waiver request in November 2010 (pp13-15 of the PDF). It is clear that the FCC had essentially already agreed the waiver with LightSquared and had “discussed [the timetable] previously”. The FCC was working to this “tight” timetable (later derailed by NTIA concerns about GPS interference) so that order could be issued on December 20, a date that was described as “critical”.
Of course (although it is not stated in the emails) the reason that this date was so critical was that (as I suspected at the time), the Commission intended to (and did) vote on net neutrality rules at the December 21, 2010 Open Meeting, which excluded wireless networks from net neutrality obligations. As a result, if the FCC had been able to announce the LightSquared waiver at that meeting, it would have been possible to say that at least one major 4G network provider had signed up to net neutrality principles of its own accord, effectively endorsing LightSquared as a competitor to the major cellular operators.
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Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 8:44 am by timfarrar
Despite considerable efforts by Charlie Ergen, it looks like the Softbank deal may now have enabled Sprint to escape from the box of constrained capital, limited spectrum and a second rate network that Sprint could have been confined to, if it had failed to gain access to either usable H block spectrum or Clearwire’s network on economically advantageous terms. Many thought that Sprint would move to purchase Clearwire immediately after the Softbank investment, but today sources are denying that is the intention, stating that Sprint has no intention of taking part in mergers or acquisitions until the Softbank deal is finalized in mid-2013. This timeline also implies that Sprint will not move to disrupt the T-Mobile/MetroPCS merger, which is expected to close in 2013Q2.
So the obvious question is why did Sprint need to issue a $3B convertible bond to Softbank right now? I think that can only be intended to warn off others from doing a deal with Clearwire in the interim, by offering John Stanton the carrot of improved economics and/or further investment from Sprint. Of course there are not many options for Clearwire to sell spectrum, now that T-Mobile and MetroPCS, the two operators most frequently rumored to have designs on Clearwire’s spectrum, are getting together.
As a result, I think Sprint’s actions appear to confirm that Clearwire was about to pull the trigger on a deal with Ergen, as I suggested last month, involving an asset sale and/or WiMAX customer transfer, in exchange for a combination of cash and debt. Notably, receipts from a sale of network assets (as opposed to a spectrum sale) would not have to be used to repurchase Clearwire’s first lien debt, suggesting that this could be a preferred way for Clearwire to raise funds. In addition, I’m told Ergen now holds in excess of $900M of Clearwire’s debt (not all first lien), and some of that could potentially have been traded for Clearwire spectrum.
Reports on the Sprint/Softbank deal have also suggested that both Carlos Slim and SK Telecom have considered investments in Sprint, and it is worth noting that SK Telecom invested $60M in LightSquared back in 2010, while Slim is rumored to be buying LightSquared debt. In fact I’m told that further significant purchases of LightSquared debt have taken place in recent weeks. If one or both of those two players therefore continue to maintain their interest in US telecom assets (which has obviously included MSS-ATC spectrum similar to that held by DISH), then Ergen may be the last, best potential partner available.
So has Sprint now prevented Ergen from achieving a deal with Clearwire? I’m told that (at least with the current ownership situation) Sprint would have no ability to veto such a transaction, so presumably Stanton will now be trying to extract vastly improved economics from the existing capacity agreement with Sprint in order to forego a DISH deal. What concessions will Sprint be prepared to make, and if it does give ground, where does that leave DISH? After all, it doesn’t seem that AT&T is prepared to pay Ergen’s asking price (perhaps as high as $80-$90 per share?) to purchase the whole of DISH anytime soon. Ergen must certainly be fuming at how FCC delays have prevented him from moving forward, while potential partners seem to be rapidly exiting the dance floor. At least he appears to have made a profit on his investment in Clearwire, but that may be little consolation if it now proves more difficult to find a way to monetize DISH’s other, much larger, spectrum investments.
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