Today news has emerged that LightSquared have failed to make the $56.25M payment to Inmarsat that was due upon completion of the Phase 1 spectrum transition, which Inmarsat certified was complete on Saturday February 18. This development is hardly surprising, because as I indicated last week, LightSquared’s investors were adamantly opposed to the payment being made. LightSquared are claiming that there are “several matters to be resolved” before the payment is due, apparently suggesting that Inmarsat have not fitted filters to their own equipment as they were being paid to do in Phase 1, while Inmarsat are stating “categorically that we have fulfilled what was required on Phase 1 of the agreement”.
Intriguingly, Inmarsat apparently believe that it is not necessary to actually fit filters to their terminals in order to fulfil the Phase 1 conditions, simply that they must be willing to accept any interference generated by LightSquared’s terrestrial operations (which of course will not arise because LightSquared have been forbidden from actually operating a terrestrial network by the FCC). It would be strikingly cynical if Inmarsat hadn’t bothered to fit any filters (and as far as I know no equipment has been retrofitted to date), because they always believed that GPS interference issues would prevent LightSquared from actually getting into service. However, that certainly seems to be the most plausible interpretation of what has happened, because (independent of GPS) serious problems could arise with maritime and aeronautical safety services (on Inmarsat terminals without filters) if LightSquared did actually commence terrestrial operations at this point in time.
UPDATE (2/22): Inmarsat’s ATC team wanted me to know that theyexist and have been working to develop ATC-resistant terminals. I know that some ATC-resistant terminals (e.g. IsatDataPro, ISatM2M, BGAN M2M, ISatPhone Pro) are already on the market, but my point above was that there has been no attempt to retrofit existing terminals used for maritime and aeronautical safety services. Indeed, Inmarsat told its partners in April 2011 that the timeline for introduction of SwiftBroadband aero safety services (which will provide ATC-resistance) “envisages flight trials in early 2013 leading to safety certification during 2014″.
As a result of LightSquared’s failure to make the payment, Inmarsat has issued a Notice of Default, which gives LightSquared 60 days to make the payment or else the Cooperation Agreement will be terminated. The key question now is whether the simple receipt of this Notice (as opposed to termination of the Cooperation Agreement itself) is sufficient to cause an Event of Default on LightSquared’s first lien debt. Although LightSquared are arguing that the Notice is invalid (because they claim Inmarsat have not fulfilled the Phase 1 requirements) that may ultimately be irrelevant if LightSquared’s investors now try to force the company into bankruptcy. I’m sure we will see a lot more news on this front in the next few days.
After a very eventful day, Mr. Falcone is claiming that he has a cunning plan and that bankruptcy “is clearly not on our table”. However, it certainly appears to be on the mind of LightSquared’s investors, who are laser-focused on stopping the $56.25M payment to Inmarsat, which is expected to be made on Tuesday next week, after the President’s Day holiday. Under pressure from investors (and UBS), LightSquared has now reportedly hired restructuring advisers from Moelis and Company, but it appears that Mr. Falcone is actively resisting UBS’s entreaties that the best way forward would be to file for bankruptcy and stop LightSquared’s cash draining away. Indeed it appears that LightSquared may have cash expenses totaling nearly $200M between now and early April, of which the vast majority would go to Inmarsat. If Mr. Falcone continues to resist then I suspect the next step may be for Mr. Icahn and others to initiate a rather more public dispute with Harbinger.
Part of this cunning plan may be to seek a spectrum swap for part of the AMT band (1515-25MHz), which LightSquared reportedly pitched to the DoD last month, despite the “extremely formidable difficulties” this would entail. Of course it is hard to see why the DoD would want to give up this spectrum, when it seems implausible that they could use the L-band satellite spectrum for these terrestrial operations instead, and being directly below the 10L block, it is not a foregone conclusion that there would be no interference to GPS. As a result, that element of the plan does not appear to be a particularly viable near term option.
The second part of the plan appears to involve trying to pressure the FCC into proposing some compensation for the supposed abrogation of LightSquared’s 2004 license. The FCC’s Public Notice doesn’t seem to actively discourage this view, complaining that no overload interference concerns were raised until 2010, and stating that:
“…although the GPS community raised overload interference issues in connection with the 2011 Conditional Waiver Order, the interference addressed by the NTIA Letter is associated with LightSquared’s planned terrestrial base stations rather than the mobile handsets at issue in the Conditional Waiver Order. Thus, the test results stated in the NTIA Letter appear to apply to the full LightSquared ATC service authorized in 2004 and 2010.”
On the other hand, the FCC is clearly being extremely careful from a legal perspective, and as the GPS industry have noted in the past, all ATC operations are subject to CFR 25.255, which states:
If harmful interference is caused to other services by ancillary MSS ATC operations, either from ATC base stations or mobile terminals, the MSS ATC operator must resolve any such interference. If the MSS ATC operator claims to have resolved the interference and other operators claim that interference has not been resolved, then the parties to the dispute may petition the Commission for a resolution of their claims.
It will therefore be very interesting to see how the FCC rules. With a comment deadline of March 1 and no reply comment period, it appears that the FCC wants to dispose of this matter quickly, though any ruling will certainly have to be very carefully written to withstand legal challenges. It seems that for the moment Harbinger are trying to keep their options open and hoping that either the DoD or FCC throws them a bone, before major payments are due at the end of March. However, it is inconceivable that a spectrum swap could be engineered in that time period and it hardly seems plausible that the FCC would proactively offer taxpayers’ money to LightSquared by way of compensation.
With respect to some of the other developments today, it is notable that Sprint are claiming they would only have to return $65M of the $310M that LightSquared had paid by the end of September. That is a big shock because I had assumed Sprint might return at least $200M to LightSquared’s creditors. If LightSquared remains determined to pay yet more money to Inmarsat and might only recover a small fraction of its advances to Sprint, then that is a very negative sign for LightSquared debtholders.
The FCC has responded to this letter with an even more devastating statement as follows:
“To drive economic growth, job creation, and to promote competition, the FCC has been focused on freeing up spectrum for mobile broadband. This includes our efforts to remove regulatory barriers that preclude the use of spectrum for mobile services. To advance these goals, the Commission runs open processes – the success of which relies on the active, timely, and full participation of all stakeholders.
“LightSquared’s proposal to provide ground-based mobile service offered the potential to unleash new spectrum for mobile broadband and enhance competition. The Commission clearly stated from the outset that harmful interference to GPS would not be permitted. This is why the Conditional Waiver Order issued by the Commission’s International Bureau prohibited LightSquared from beginning commercial operations unless harmful interference issues were resolved.
“NTIA, the federal agency that coordinates spectrum uses for the military and other federal government entities, has now concluded that there is no practical way to mitigate potential interference at this time. Consequently, the Commission will not lift the prohibition on LightSquared. The International Bureau of the Commission is proposing to (1) vacate the Conditional Waiver Order, and (2) suspend indefinitely LightSquared’s Ancillary Terrestrial Component authority to an extent consistent with the NTIA letter. A Public Notice seeking comment on NTIA’s conclusions and on these proposals will be released tomorrow.
“This proceeding has revealed challenges to maximizing the opportunities of mobile broadband for our economy. In particular, it has revealed challenges to removing regulatory barriers on spectrum that restrict use of that spectrum for mobile broadband. This includes receivers that pick up signals from spectrum uses in neighboring bands. There are very substantial costs to our economy and to consumers of preventing the use of this and other spectrum for mobile broadband. Congress, the FCC, other federal agencies, and private sector stakeholders must work together in a concerted effort to reduce regulatory barriers and free up spectrum for mobile broadband. Part of this effort should address receiver performance to help ensure the most efficient use of all spectrum to drive our economy and best serve American consumers.???
Unsurprisingly, it appears that Chairman Genachowski wanted to get this issue off his plate before testifying to Congress on Thursday. It now seems the next steps will be a Public Notice, which may request comment on the terms of reference for a future receiver/interference standards proceeding, followed by a proceeding stretching well beyond the November 2012 election. Even if that resulted in a favorable ruling, the NTIA letter highlights that “lower 10″ operations would not be phased in for many years (2020 or beyond), which as I’ve indicated previously makes it extremely unlikely that it would be worthwhile preserving the current Cooperation Agreement with Inmarsat.
Indeed, with Inmarsat poised to claim another $56.25M from LightSquared early next week, and the 90 day bankruptcy window for challenging the $40M paid to Inmarsat in November expiring on Thursday this week, a decision may need to be reached on how to proceed very soon. With LightSquared set to run out of money in the near future, the company must now consider whether to file for bankruptcy and preserve its resources for the inevitable litigation fights, or continue pretending that all of these problems can be overcome while its cash drains away.
It seems that even if LightSquared does continue to pretend that all is well (and remember that LightSquared’s relentlessly optimistic/deluded CEO told the FT only a few days ago that he was confident the FCC would “do the right thing” and approve the network), then its debtholders will certainly assert that the FCC’s action means a MAC has occurred under the first lien debt covenants. However, it remains unclear whether that event would occur upon release of the FCC’s Public Notice tomorrow, or only when a final Order is issued, which may not take place for several months.
With apologies to Private Eye, it seems like everyone is trying to grab as much of LightSquared’s cash as they can, while there is still some left in the bank, and run away before they get sued. I’m told that Inmarsat is poised to assert completion of its Phase 1 transition (freeing up two 2x5MHz blocks of spectrum, known as 5L and 5H) on February 18, which would entitle it to a payment of $56.25M. In addition, it appears that the spectrum blocks used for augmentation signals by Starfire’s precision GPS receivers will be moved in late March (though it should be noted that this shift does nothing to protect these receivers from experiencing interference if LightSquared was ever to begin terrestrial operations).
However, once this relocation has taken place, Inmarsat should also be able to claim completion of the Phase 1.5 transition by April 1 (freeing up the lower 2x10MHz block, known as 10L) under the April 2011 amendment to the Cooperation Agreement, which I’m told would entitle it to another very substantial sum of money (many tens of millions of dollars) over and above the $40M already paid. This is an additional cash outlay that I had not considered in my previous estimates of LightSquared’s cashflows, and although it is not enough in itself to exhaust LightSquared’s remaining cash resources, it certainly could be another potential hit to the ultimate recovery for LightSquared’s creditors (unless they can recover this money via the lawsuits that will inevitably be filed against Inmarsat and other parties at a later date).
UPDATE (2/14/12): I’m told that Starfire will be relocated to somewhere in the 1536-1544MHz spectrum block, implying that Inmarsat’s focus is on strict compliance with the terms of the Cooperation Agreement (so they can claim more money from LightSquared), rather than on creating a long term solution for these users (which would involve placing the augmentation downlinks close to the top of the band around 1559MHz). That’s unsurprising because Inmarsat emphasized previously, in a confidential June 2010 letter to the FCC (included in the recent FOIA production), that they would only be doing the work LightSquared paid them to do, and nothing else.
At the House Aviation Subcommittee hearing last Wednesday, it was indicated that the NTIA’s report and recommendations would be transmitted to the FCC “shortly”, and although the report was not released on Friday evening, it seems all but certain that we should hear more this week, potentially followed very quickly by an FCC ruling to initiate an interference/receiver standards proceeding. The testimony of Mr. Porcari, Deputy Secretary at the Dept of Transportation, and co-signatory of the Jan 13 Excom letter could not have been more clear in stating that “[The Obama Administration has] concluded that [LightSquared's] current plan to provide such services adversely affect GPS signals” and “LightSquared’s proposals are fundamentally incompatible with GPS use”, so it now seems that the FCC will be bound to indicate that LightSquared will not be permitted to build and operate a terrestrial network for the foreseeable future.
However, the precise language of this ruling will be critical in establishing whether a Material Adverse Change has occurred under LightSquared’s debt covenants. With Inmarsat apparently intent on securing as much money from LightSquared as it possibly can in advance of a bankruptcy filing, and no chance of a favorable ruling from the FCC, LightSquared’s creditors will now presumably be keeping their fingers crossed that in the very near future they have the chance to assert that an event of default has occurred, and stop LightSquared’s cash from draining away, perhaps even before the next payment is made to Inmarsat on February 18.
So the Looney Tunes cartoon (think Wile E. Coyote) that has been LightSquared over the last year appears to have finally run its course, with LightSquared today effectively conceding defeat by asking the FCC to initiate what will inevitably be a multi-year receiver standards proceeding (followed by an even longer transition period for any such standards to come into effect). Today’s press conference was called at very short notice and appears to have happened in response to the impending release of the NTIA’s report and recommendations, which are also likely to call for an investigation into potential future receiver standards and indicate that LightSquared should not be allowed to operate its terrestrial network in the meantime.
Rather than waiting until March for comments on LightSquared’s Petition for Declaratory Ruling, the FCC now appears determined to clean up any loose ends and get this issue off its plate as soon as next week, before Congressional hearings into the procedures it followed in granting the LightSquared waiver get underway. Indeed the FCC Chairman stated after the Public Notice was issued on Jan 27 that the Petition for Declaratory Ruling would not affect the timeline for the FCC’s next steps. It therefore wouldn’t be unreasonable to suppose that LightSquared may have been given a strong hint that by asking for a receiver standards proceding themselves they could avoid a harsher ruling from the FCC mandating such a proceeding.
Of course, the FCC may also be looking to deflect attention from its own release of some documents in response to the numerous Freedom Of Information Act requests that have been filed. Buried in this release are numerous damaging documents which raise questions about the apparent coordination of LightSquared’s November 2010 waiver request with FCC staff prior to it being filed (and incidentally disclose LightSquared’s pricing plan of $6 per Gbyte for terrestrial capacity and $10 per Mbyte for satellite capacity, as well as the overall planned system capacity of 2800 Tbytes per hour terrestrially and 100 Gbytes per hour via satellite) which led to it being put out for comment immediately. It is also unclear whether this meeting with LightSquared on November 16 was disclosed in any ex parte filing. Indeed LightSquared had also been discussing with the FCC a change to their business plan to only launch one satellite, which has never been disclosed publicly (except in one accidental comment that I blogged about at the time).
However, potentially even more damaging are documents related to the conditions imposed on LightSquared (then SkyTerra) as part of the Harbinger transfer of control proceeding which led up to the FCC Order in March 2010. As part of these conditions, SkyTerra agreed not to lease spectrum or more than 25% of its network traffic to AT&T and Verizon, which met with a furious reaction from those two companies, who described this restriction as “manifestly unwise and potentially unlawful“. After AT&T and Verizon filed petitions for reconsideration, enquiries from Congress prompted the FCC Chairman to write a letter asserting that these were “voluntary commitments [Harbinger] made” (as opposed to something the FCC imposed). That was always a very suspicious assertion, given it is hard to see why Harbinger would have wanted to limit its ability to do a deal with AT&T or Verizon.
The FCC’s FOIA releases in fact confirm that Paul de Sa at the FCC appears to have initiated the discussion of conditions “on build out and wholesale agreements…to ensure the public interest benefits of the build out” in November 2009 and he apparently was responsible for drafting the written version of these conditions (in an internal FCC meeting) after meeting with Harbinger (again apparently with no ex parte filing) and persuading them to sign off in late January 2010. With this background now revealed, its hardly surprising that Sen. Grassley has a lot of questions he wants to ask, which presumably should relate not only to the January 2011 waiver, but also to the March 2010 transfer of control.
Today, the complexities of both the LightSquared and DISH regulatory processes both got even more messy. In the DISH waiver proceeding, AT&T filed an ex parte submission urging the FCC to impose buildout conditions on DISH similar to those imposed on LightSquared (260M POPs within 5 years 9 months), rather than any financial clawback to address the increase in value of the spectrum that a waiver would produce. AT&T also asks for conditions to be imposed on DISH’s 700MHz spectrum in line with the conditions imposed on AT&T’s recent purchase of spectrum from Qualcomm.
This submission is a blatant attempt by AT&T to put a thumb on the scales, as the FCC weighs up the appropriate balance between buildout mandates and clawback of any windfall. The reason for AT&T’s action at this very late stage in the process appears to be that DISH is trying to play off AT&T’s prospective bid against a potential venture with MetroPCS. MetroPCS would certainly be unwilling to commit to a 260M POP buildout, so if the FCC conceded AT&T’s demands, they would be the only game in town and DISH would lose its leverage in price negotiations. We’ll find out soon enough if AT&T’s gambit succeeds, but few would bet against Charlie Ergen’s poker playing skills after the events of the last year.
In the even more complex LightSquared process, the FCC has today issued a Public Notice establishing a Pleading Cycle in respect of LightSquared’s December 2011 Petition for Declaratory Ruling, which sought to establish that GPS receivers were not entitled to interference protection. This Pleading Cycle, with comments due by Feb 27 and replies by March 13, almost certainly pushes back an FCC ruling on the LightSquared testing into the second half of March, because the FCC would want to deal with all of these issues simultaneously. As a result, attention is now likely to be focused around April 1 (appropriately enough All Fools Day), when LightSquared is due to make the next interest payment on its debt and another ~$30M payment to Inmarsat.
The most intriguing issue in the Public Notice is the FCC’s subtle attempt to decouple the resolution of GPS interference from LightSquared’s January 2011 waiver, suggesting that any provision of the “terrestrial portion of service” is subject to the “Interference-Resolution Process” which “to date…has not been completed”:
On January 26, 2011, the International Bureau granted LightSquared Subsidiary LLC (a subsidiary of LightSquared Inc., hereinafter also referred to as LightSquared) a conditional waiver of the ATC “integrated service??? rule, thereby establishing certain conditions that LightSquared must meet before it can provide the terrestrial portion of service contemplated by its proposed integrated satellite and terrestrial 4G wireless network. The Conditional Waiver Order prescribed an Interference-Resolution Process by which LightSquared would work with the GPS community to resolve concerns raised about potential interference to GPS receivers and devices that might result from LightSquared’s planned terrestrial operations. As a condition of commencing such commercial operations, the Conditional Waiver Order required that this process first be “completed,??? a term defined as the point at which “the Commission, after consultation with NTIA, concludes that the harmful interference concerns have been resolved and sends a letter to LightSquared stating that the process is complete.???
The reason for this is because LightSquared has indicated that, in the event it was blocked from operating, it would withdraw the January 2011 waiver application and claim it had the right to operate a dual-mode (satellite-terrestrial) service under the conditions of the FCC’s 2005 rulings. While that might not be economically viable (or practical), the FCC would presumably then be forced to step in to protect GPS and thereby supposedly “infringe” on LightSquared’s claimed “property rights”. The Petition for Declaratory Ruling is also an attempt to eviscerate the interference protections contained in the 2005 rulings (referred to as CFR 25.255) and thereby make the supposed infringement of LightSquared’s rights all the more obvious.
Thus, from this Public Notice, it does appear that the FCC is at least cognizant of LightSquared’s legal strategy, and is likely (as I predicted) to ultimately rule that the Interference-Resolution Process should be prolonged (and extended to cover GPS receiver/interference standards) and that in the interim LightSquared will be prohibited from commencing any terrestrial operations. LightSquared is apparently contending that this wouldn’t constitute a MAC on its debt covenants, but I suspect that’s an argument some of the debtholders (including Mr. Icahn) will want to test in court.
All this makes for a very complicated set of legal arguments, but one additional piece of information did emerge today that sheds some light on the big picture of why it has been so hard for spectrum holders to monetize their assets, and why the FCC has come in for so much well deserved criticism. DSL Prime is reporting that growth in mobile data usage is running at less than half the level predicted by Cisco and that the FCC staff “demanded their name be taken off” the FCC’s October 2011 demand forecast, because they “didn’t believe the claims in this paper”. However, with so many gullible journalists and investors buying into the idea of a (manufactured) “spectrum crisis” rather than a “spectrum bubble“, perhaps its a bit less surprising that LightSquared has been able to raise over $2.5B of investment in the last 18 months.
After some uncertainty, it appears that LightSquared’s debtholders are gradually coalescing around Mr. Icahn’s view that they should invoke the MAC clause in the debt covenants and force LightSquared into bankruptcy immediately after an unfavorable FCC ruling, assuming that comes in the next couple of weeks. The key reason for this would be that LightSquared is due to pay Inmarsat $56.25M on February 18 (18 months after LightSquared gave the Phase 1 notice to Inmarsat under their Cooperation Agreement) and that sum of money is potentially big enough to make a material difference to the ultimate recovery, assuming that a liquidation is the eventual outcome of the bankruptcy case.
As debtholders get increasingly angry about this debacle, it also seems that they are looking around for other people to sue. Interestingly, it was suggested to me that (in addition to Harbinger) one potential target would be UBS, because the extent of the GPS interference problems may not have been disclosed fully at the time of the $586M February 2011 debt offering (UBS were the arrangers for this loan).
I for one had already blogged about the potential extent of the GPS interference issues in January 2011, based on testing that I had been told about by a major equipment manufacturer. In that case the engineers were so astonished by LightSquared’s proposed power levels that they brought in their personal car and handheld GPS receivers and noted considerable interference many hundreds of meters away from the test transmitter. In particular, it was pointed out to me that third order modulation interference into the middle of the GPS band was essentially an unsolvable problem under LightSquared’s original 10L and 10H configuration.
As a result this company had already concluded that (at the very least) use of the upper band spectrum was infeasible, well before the loan was sold to investors, and it can hardly have been long after that before LightSquared started negotiating with Inmarsat over the revised spectrum plan which was signed on April 25. Indeed my discussions with many knowledgeable people in mid-March (at the Satellite 2011 conference) indicated that everyone (including people with connections to LightSquared) already believed that use of the upper band would never be feasible (Note: the Field of Dreams reference in this link is still my all-time favorite – so thanks again to the unnamed satellite industry executive who noted the Chisholm, MN connection).
This evening Reuters is reporting that Mr. Falcone is examining “the potential for selling [LightSquared's] right to certain spectrum leases” to “raise cash for his financially strapped telecom start-up”. Those leases are presumably the 8MHz of 1.4GHz spectrum that LightSquared leases from TerreStar Corp and the 5MHz of spectrum at 1670-75MHz that is leased from Crown Castle. However, its hard to see how LightSquared could raise any meaningful amount when any buyer would have to take over the underlying lease obligations ($24M per year for the TerreStar spectrum and $13M per year for the Crown Castle spectrum) and there is no clear buildout plan for either band. Indeed LightSquared had not even planned to include the 1.4GHz spectrum in its LTE network, instead entering into an agreement with Airspan Networks in August 2010 under which Airspan would “exclusively market LightSquared’s 1.4 GHz wireless spectrum” to the utilities industry as “a comprehensive solution for Smart Grid and Smart Utility applications” (though with no visible success to date).
Other news emerging today is that I’m told the NTIA plans to release its report on the November 2011 testing next week, presumably accompanied (concurrently or very shortly thereafter) by its recommendations to the FCC. It appears that the NTIA will back the PNT Excom recommendations (most likely including that there should be no further testing at this time and that there should instead be a consultation on GPS receiver standards), and it could hardly do otherwise, given that the test procedures criticized by LightSquared were specified by NTIA in the first place. Remember also that last August Mr. Strickling believed LightSquared was “in Wonderland” in thinking it could move forward after the initial test results came out.
I’m also told that LightSquared is trying very hard to pressure the FCC to overrule the NTIA, and order that the high precision testing should start within the next two weeks. However, that hardly seems plausible given the political firestorm that would be ignited by a public disagreement between the FCC and NTIA. Messrs. Genachowski and Strickling will be in Geneva this weekend for WRC-12 and it sounds like they will be very busy trying to avoid that situation. As a result, we might well see the same outcome as in September, when the release of the NTIA letter was followed very quickly by an FCC response (which in that case was to adopt the NTIA recommendation). It definitely looks like next week will be a very busy one, so follow me on Twitter @TMFAssociates for all the latest information.
UPDATE (1/22): It appears that the NTIA recommendations letter will have to wait for Mr. Strickling to return from Geneva, so we may not see it until the week of Jan 30. I also now expect the FCC to order a (pretty lengthy) GPS receiver standards rulemaking, which will allow for further testing and debate on when the lower band spectrum might be useable for terrestrial services (think 2020 or thereabouts, though we won’t have any definitive transition timeline until 2013 or even 2014) and conveniently put off any decision until after the November election. Of course, because LightSquared will be unable to operate its terrestrial network in the meantime (almost certainly a MAC for its loan covenants), that will likely set off a major battle amongst the debtholders about what to do next, with Mr. Icahn likely to try and force LightSquared into bankruptcy in the near future, while some other debtholders might be more supportive of Mr. Falcone if they still believe he can see this process through.
Assuming that the FCC did agree with the NTIA and stated that it was prohibiting LightSquared from commencing terrestrial operations for the foreseeable future, the most interesting question will be the grounds for its legal authority in doing so. LightSquared has indicated that it would withdraw the waiver request in these circumstances, and that it believes this would render the condition (requiring GPS interference concerns to be resolved) imposed in the January 2011 order null and void. In that case, the FCC would probably have to fall back on the authority that the GPS industry (plus others such as CTIA) have asserted all along (and LightSquared has challenged, most recently in its Dec 2011 Petition for Declaratory Ruling), that CFR 25.255 (“If harmful interference is caused to other services by ancillary MSS ATC operations, either from ATC base stations or mobile terminals, the MSS ATC operator must resolve any such interference”) provides absolute protection against LightSquared being permitted to cause harmful interference. In that case we could expect to see LightSquared launch legal action very quickly, in line with the position adopted in its December petition.
Last week I expressed the view that LightSquared’s new investors could very well prolong the fight between LightSquared and the GPS industry. However, signs are starting to emerge that the FCC might be more willing to act than I had anticipated, and rule against LightSquared, which would potentially create a Material Adverse Change (MAC) in LightSquared’s first lien debt covenants, allowing the new investors to force the company into bankruptcy, and wrest control from Harbinger. While I still believe that the end game will involve liquidation of the business (not to mention litigation against all and sundry), the current debt investors would certainly benefit if they didn’t have to wait until all of LightSquared’s money had been spent in advance of a bankruptcy filing.
We are awaiting completion of recommendations from NTIA. As we have said from the outset, the FCC will not lift the prohibition on LightSquared to begin commercial operations unless harmful interference issues are resolved.
To misquote Oscar Wilde, to lose one official may be regarded as a misfortune, to lose both looks like carelessness. If (and I do mean if) there is something problematic to emerge from the communications between LightSquared and the FCC, then it would certainly help to defuse the ensuing political firestorm if the FCC had already acted on the recommendations of the NTIA (which I think will very likely follow those of the PNT Excom). Communications Daily is now reporting that the NTIA has received the full report from the PNT Excom and will now review it and “eventually” advise the FCC how to move on the issue. However, if high precision testing is not going to be undertaken in advance of formulating these recommendations, the FCC could be in a position to rule relatively soon.
Well it seems like all LightSquared has left now is an attempt to claim that the US government is biased against it, representing a remarkable turnaround from this time last year, when most people thought that any favoritism was going in the opposite direction. However, it appears that LightSquared’s protests are going to have absolutely no effect, because all of their allegations about how the testing was not “fair and accurate” simply reflect the NTIA’s own mandates for how the testing should be conducted.
We want to do what is necessary so that our recommendations to the FCC regarding cellular and personal/general navigation GPS receivers can be conclusive and final. To that end, I want to make it clear that our recommendations will be based on NTIA standard definitions and methodologies for assessing interference. We will not accept conclusions or analysis based on propagation models and other tools that depart from our standard methodologies.
Of course the “standard definition” as agreed for the June TWG report was 1dB of degradation, and it was only when LightSquared discovered that the June results were unfavorable that they came up (at the last minute) with their alternative proposal of allowing 6dB of interference degradation, which was never accepted by the NTIA.
Secondly, the Sep 9 letter requested that “that the test plan include a retest of the 10 devices that were shown by the TWG testing to be more susceptible to the lower 10 MHz scenario”. Thus it was at Mr. Strickling’s explicit request that the testing “deliberately focused on…devices that were least able to withstand potential interference”.
Finally the tests were “shrouded in secrecy” because they involved technical performance data on individual GPS devices which both the FCC and NTIA agreed to keep confidential. The same procedure was used in the first round of tests in order to avoid data being released on individually identifiable devices and it is far from clear what LightSquared is alleging was done differently this time. Indeed, with the most “susceptible” of the previously tested devices being included in the second round of tests, it would have been necessary to keep the list of tested devices confidential in order to avoid revealing which these “susceptible” devices were.
It therefore seems clear that by LightSquared’s definition Mr. Strickling himself would count as one of the “government end users [who] manipulated the latest round of tests to generate biased results”. That doesn’t seem like a recipe for success when you are asking the NTIA to “objectively re-evaluate this initial round of testing” and ignore the recommendations of the PNT Excom.
What I find even more surprising is that LightSquared was briefing its investors as recently as Tuesday last week that everything was “under control” with respect to interference, when their letter to Mr. Strickling on Friday Jan 13, after the PNT Excom letter was released, noted that:
LightSquared has communicated its concerns repeatedly to PNT EXCOMM, NPEF and Air Force Space Command throughout this process, both verbally and in correspondence. All of these concerns have been seemingly disregarded. As you are aware, we have also corresponded with your office to make sure you were advised as the process unfolded.
In addition, the letter states that the FAA had “unilaterally decided to suspend any further collaboration” with LightSquared. These two statements are very hard to reconcile with LightSquared’s briefing to investors that the interference issues were “under control”, which was the reason that new investors became involved with the company. As a result, these (and other) investors might now feel that its not only LightSquared’s (currently invisible) CEO who is lacking in credibility. There was certainly a rush for the exits yesterday, with prices on LightSquared’s first lien debt opening with a markdown of ~9 cents to 40-44 cents on the dollar, and then falling further to 38-42 cents during the day.
