11.10.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:07 am by timfarrar
So apparently yesterday’s PNT Advisory Board meeting was “a watershed moment” for LightSquared, because “the GPS interference issue can be solved” and “the entire debate has turned from whether there is a solution to who pays for it”. Of course, that’s a massive oversimplification of reality, because as the introductory presentation to the meeting set forth, there are vast amounts of testing still to perform. In particular, the latest PNT newsletter has confirmed that LightSquared’s proposed solution for precision devices will not be tested until at least “early 2012″.
However, what no-one seems to have picked up on is that in LightSquared’s semi-annual progress report, filed with the FCC on October 31, the company confirmed that it is ignoring the FCC mandated timeline (from the January 2011 waiver) to make devices available by September 30, 2011 and now has postponed the anticipated availability of “embedded modules, USB data modems and other devices” from BandRich and AnyData until “late 2012″. While LightSquared still expects Qualcomm to make chipsets available in “late 2011″ that could “facilitate access to LightSquared’s network” there is no associated commitment to actually make devices. Though Sharp and Airtouch “have agreed” to develop a range of devices, there is apparently no timeline for this to take place (indeed Sharp has stated publicly that it “would need a minimum purchase order before it would build such devices”). Basically, therefore it appears there will now be no devices capable of accessing LightSquared’s network for at least a year or more, making LightSquared’s continued assertions that it will launch service in the “second half of 2012″ even more laughable than they already were.
More importantly, if testing of LightSquared devices is also a pre-requisite for FCC approval, as the PNT Advisory Board apparently desires, then it now seems that this will not be possible for many months to come. Of course, this gives the FCC yet another excuse to hold off from making any ruling on the LightSquared issue, even to ban terrestrial deployment in the upper 10MHz band which everyone knows can never be used, because that will simply provide LightSquared with the excuse it is looking for to initiate litigation over the supposed expropriation of “part of LightSquared’s spectrum – worth billions of dollars”.
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11.04.11
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 1:04 pm by timfarrar
In addition to Sprint’s announcement today that it plans to offer new debt in a private transaction, Sprint has more quietly been rounding up additional money from both LightSquared and DISH. In Sprint’s most recent 10-Q, filed yesterday, the company notes that “In September, the [spectrum hosting] arrangement was amended to change the September 30, 2011 contingency date for LightSquared’s performance to December 16, 2011. The December 31, 2011 contingency date remained unchanged. This amendment also provided for an additional prepayment of $20 million, which was received in October 2011.” Today, Sprint has told the FCC that “DISH and Sprint have today reached an agreement to settle all of these [reimbursement] disputes among Sprint, DISH, and their subsidiaries and affiliates in a mutually satisfactory manner” and will presumably therefore be paid a significant proportion of its $220M claim against DBSD and TerreStar ($110M per company) for BAS relocation expenses.
UPDATE (11/7): DISH has now revealed that it will pay Sprint a total of $114M, though it is not yet clear if Sprint will retain any additional claims in the bankruptcy cases of DBSD and/or TerreStar Networks.
However, the two disclosures appear to have rather different consequences for LightSquared and DISH. In the case of LightSquared, this represents another $20M of expenditure over and above the amount assumed in my analysis earlier this week. More importantly, Sprint has set a precedent under which it will now presumably expect to be paid even more money when LightSquared is unable to meet the revised deadline of December 16 and the second deadline of December 31 (and of course it is certain that the FCC will not be able to rule by then, because LightSquared’s proposed filter for precision GPS equipment is not being tested by the government this month, as LightSquared has now admitted).
I also now suspect that Boeing’s vendor financing loan may simply have been extended (perhaps by 12 months?), from its original December 2010 repayment deadline, and a new deadline is likely to occur relatively soon, because Boeing will need some certainty about whether the SkyTerra-2 satellite will be available for its MEXSAT project. If Boeing does insist on repayment (of what would now be $130M+) within the next few months, then (faced with the unpalatable alternative that LightSquared forfeits the ground spare satellite and potentially jeopardizes its ATC license) LightSquared could well run out of money before its next first lien interest payment in April. Specifically, my estimate on Monday was that LightSquared would have about $170M in cash at the end of Q1 2012, which would not be sufficient to cover a payment of $130M+ to Boeing, plus the $20M already paid to Sprint and the additional payments that are now likely in respect of the December deadlines. Even without making any repayment to Boeing, if LightSquared needs to pay Sprint an extra $20M for each additional 3 month deadline extension, then it would have barely enough money to make the interest payment due on April 1, 2012.
In the case of DISH, it appears that the news of a Sprint settlement is more positive, as it removes one of the main roadblocks to the FCC approving a transfer of control of the DBSD and TerreStar assets to DISH. However, DISH’s requested ATC waiver has come under more pressure, with AT&T now joining the CTIA in pressing for the waiver issue to be considered in a full rulemaking proceeding. Interestingly, both AT&T and the CTIA raise the question of a windfall, with the CTIA explicitly noting (footnote 21) that:
While DISH argues that it took into account the possibility of future flexibility for the spectrum during the bankruptcy process, certainly other parties were not factoring that into the process. Moreover, 40 MHz of nationwide, terrestrial broadband spectrum would not be valued at $2.8 billion. When looking at past valuations for such spectrum assets, a valuation of 3 to 4 times this would be more realistic if terrestrial rights were guaranteed.
Of course, that statement once again highlights the issue of LightSquared’s own $10B windfall problem which the GPS industry are now making so much of, and makes it harder for the FCC to grant DISH a waiver without some way to recover value for the Treasury. As a result, it is plausible that (with the transfer of control and ATC waiver being processed by the FCC in separate dockets) a ruling on the transfer of control could come ahead of any waiver decision.
UPDATE (11/14): A November 9 ex parte filing from DISH appears to confirm that the FCC is concerned about the “windfall” issue and might separate the transfer of control ruling from the waiver requests.
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10.31.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:18 am by timfarrar
Back in September I tried to analyze LightSquared’s cashflows, in order to predict when it might run out of money. A Debtwire article published in the FT earlier this month gives some useful data which has enabled me to refine that analysis. In particular, it states that after paying Sprint its $290M and raising $265M as an unsecured term loan, at the end of the second quarter of 2011 LightSquared had about $614M in cash.
That amount is very close to my estimate, with one exception, namely that it appears LightSquared did not repay Boeing’s vendor financing loan of ~$120M in December 2010. That loan was secured against the SkyTerra-2 (formerly MSV-2) satellite, which LightSquared told the FCC in October 2010 would be launched in the first half of 2011 (to meet the deadline in LightSquared’s Canadian license to place the satellite in orbit of April 23, 2011). Of course that didn’t happen, and I assume that LightSquared cancelled the launch to save money.
However, as I noted last December, Boeing’s contract to build the MEXSAT system involves the construction of two copies of the LightSquared satellite, and it would therefore make sense for Boeing to re-use the SkyTerra-2 satellite for its MEXSAT contract. It therefore seems that Boeing has either kept the vendor financing in place (under the assumption it will pick up the SkyTerra-2 satellite in bankruptcy) or has already reached some agreement with LightSquared to purchase the SkyTerra-2 satellite in exchange for forgiving the vendor financing loan. Either way, it seems that LightSquared’s creditors may now have one less asset to monetize in bankruptcy.
Taking this incremental $120M in cash into account, I have updated my financial projections, and these are given below. LightSquared has stated that it is funded through Q1 of 2012, and that it can “extend the runway of cash” if it has to. This appears to be a reference to deferring the next significant payment to Sprint, which I understand is due at the end of Q1. Sprint may or may not choose to extend the payment schedule with LightSquared, though Sprint’s actions would likely be dependent on what best positions it to retain the $290M already paid by LightSquared in a bankruptcy. However, as shown in the analysis below, even if no more payments are made to Sprint, LightSquared would still run out of money by the summer of 2012.
Interestingly the DebtWire article claims (incorrectly in my opinion) that LightSquared’s “liquidity is sufficient through 2012″ and more astonishingly that “current trading levels [for the first lien debt at 50 cents on the dollar] imply investors are taking a conservative approach and only valuing the more dependable 20 MHz, valued at USD 0.13-USD 0.14 megahertz per population (MHz/POP)”. Of course, this is far from a conservative approach when comparing the valuation with TerreStar and DBSD, because LightSquared must make lease payments of $115M per year to Inmarsat for access to the L-band spectrum, equivalent to an additional 30 to 40 cents per MHzPOP (depending on the appropriate discount rate), when attributed solely to the “more dependable 20 MHz”. Put another way, if LightSquared has to keep paying for the Inmarsat lease, and can only make use of 20MHz of its L-band spectrum (even if that were usable in the near term, which it will not be), then if DBSD and TerreStar were the appropriate benchmark (20 to 25 cents per MHzPOP) the LightSquared spectrum would be worthless.
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10.28.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 4:32 pm by timfarrar
Over the last few months, LightSquared’s CEO has repeatedly asserted that he is “absolutely confident” that LightSquared will “build a system that works with” GPS and that “we will get the proper approvals from the FCC and other government agencies” when the decision comes out in September. Most recently, at the end of September, he told the New York Post that he is “absolutely confident the FCC will approve” LightSquared’s revised business plan later this year. I’m also told that earlier this year he personally “guaranteed” to investors there was no interference problem with GPS, which was how LightSquared was able to raise a further $586M in February.
News has emerged today which yet again proves Mr Ahuja’s confidence was completely misplaced, with Aviation News reporting that the next round of government tests of LightSquared’s “lower 10″ plan are getting underway this week and will run into the first part of November. Notably, as I indicated earlier, high precision receivers are not part of this testing and so the testing needed for the FCC to reach a decision will certainly not be completed this year (not to mention the fact that the NPEF doubts it will be possible even to complete its analysis of the current testing by November 30).
High-precision GPS receivers, which original tests showed would suffer unacceptable interference even from lower-band transmissions, are not being tested as LightSquared is still working with suppliers on development of antennas and filters to protect these devices, used in agriculture, construction and scientific sectors.
Indeed a new ex parte submission, documenting a meeting between the GPS industry, LightSquared and the FCC on October 25, brokered by a member of Congress, confirms that “LightSquared has proposed to develop new filters that could be employed in new high precision GPS receivers that would protect against interference from Low 10 MHz transmissions. Such filters have not yet been made available”. This is despite LightSquared’s assertions on September 21 that “Javad GNSS has completed the design, made prototypes and tested those prototypes. Preproduction units will be released for public tests in October, followed by mass production.”
Perhaps that is why LightSquared apparently now plans to commission its own “independent” tests by Alcatel-Lucent Bell Labs, though of course those will not carry any weight in the testing process mandated by the NTIA and FCC. However, it is hard to see how LightSquared can claim that “These solutions will undergo extensive National Telecommunications and Information Administration (NTIA) and Federal Communications Commission (FCC) testing in the coming weeks” unless “in the coming weeks” is re-defined as “sometime next year (if we’re still in business then)”.
Over the last month, we haven’t seen as many high profile appearances from Mr Ahuja, and apparently he has been visiting India to promote his Augere venture in Asia and Africa. However, he is scheduled to speak on Wed Nov 2 at the Open Mobile Summit in San Francisco, and it will be interesting to hear how “absolutely confident” he is in whatever LightSquared’s story changes to next week.
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10.26.11
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum at 11:03 am by timfarrar
Last week we saw various filings from wireless companies and the CTIA on DISH’s transfer application/ATC waiver request for DBSD and TerreStar, which mostly just served to highlight the interests of the different wireless operators. MetroPCS asked the FCC to force DISH to provide a detailed business plan before considering the transfer application (in other words to do a deal with them rather than wait for a decision on the AT&T/TMO merger). Sprint asked the FCC to condition the transfer on reimbursement of Sprint’s relocation expenses, and to impose the same buildout conditions on DISH as the FCC imposed on LightSquared in exchange for the waiver (thereby potentially forcing DISH to pay Sprint to host their buildout). Meanwhile the CTIA asked the FCC to defer any decision on a waiver until a more general rulemaking proceeding has been completed (thus allowing the wireless operators to find out what will happen to the AWS-3 spectrum and whether the 1755-1780MHz block will be available for pairing). Ironically the CTIA cited potential interference with the G-block PCS spectrum as a reason for delay, when Sprint (who owns this spectrum) didn’t even mention it in their submission.
DISH’s formal response is due tomorrow (Oct 27), but an ex parte submission and an interview with Charlie Ergen both highlight that DISH is going to make sure that the FCC is under more pressure to conclude this proceeding (and finally take the first step towards its goal of making more spectrum available) than DISH is. Indeed DISH would clearly prefer to wait until a decision is reached on the AT&T/TMO merger, because if the proposed merger is blocked then more potential partnerships would open up. In my view, the most likely partnership would then be with AT&T, which has come close to a deal to buy DISH in the past, and would be able to use both DISH’s 2GHz MSS-ATC spectrum and its 700MHz E-block spectrum (in conjunction with the MediaFLO spectrum that AT&T plans to buy from Qualcomm).
However, the FCC still has to avoid giving DISH a similar spectrum windfall to LightSquared and if DISH is to avoid having to give up part of the spectrum for reauction, it will have to come up with some creative way to reimburse the Treasury financially for any windfall (e.g. offering to pay the difference between what it paid for DBSD and TerreStar and the amount the adjacent J-block 2020-25/2175-80MHz spectrum sells for in any future auction).
Today, it seems that Sprint has rowed back somewhat on its implied threat on October 7 to force Clearwire into bankruptcy, announcing a “non-binding memorandum of understanding to work together” on ensuring that the two companies’ LTE networks will be interoperable. While this is only a limited first step towards Sprint providing concrete backing to Clearwire in 2013 and beyond, it appears designed to allow Clearwire to go out and attempt both to raise new funding and to secure other partnerships ahead of the early December deadline for Clearwire’s next interest payment on its debt. In the short term the most plausible new partnership would be with MetroPCS, which recently said it is “uniquely positioned” to do something with Clearwire, though it is unclear how much of a financial commitment this would actually involve on MetroPCS’s part.
Yesterday Sprint also indicated that it plans to deploy a 2x10MHz LTE Advanced network in its 800MHz iDEN spectrum, which is the subject of today’s MoU on interoperability. By using this additional spectrum for LTE (rather than CDMA as had been previously stated), Sprint would be able to deliver LTE across a mix of low (800), medium (1900) and higher (2500) frequency spectrum bands depending on the population density in a given area, with the Clearwire network providing supplementary capacity in the densest urban areas. If other wireless operators adopt a similar model, then Clearwire could become a wholesaler to multiple major carriers (e.g. Verizon as a supplement to its LTE deployment which is currently at 700MHz and will later extend to AWS), as would be needed if Clearwire is to build a wholesale business on the back of covering at most 100M-150M POPs. Nevertheless, it will take a minimum of several years before a company like Verizon or AT&T would realistically need that additional capacity and so Clearwire still has a lot of work to do (and a lot more money to raise, now that its WiMAX cashflows are likely to diminish) to pull off its transition to a multi-network wholesale provider of urban capacity, not least in creating an ecosystem around TD-LTE in the 2.5GHz band.
However, at least Clearwire appears to have a plausible plan for how to move forward, unlike LightSquared, which has now basically been written off by MetroPCS and (after today’s announcement) implicitly by Sprint as well. On that basis, it looks like Harbinger’s write-down of its LightSquared investment at the end of September will end up being only the first of several such actions. Its also very hard to see how investors in LightSquared’s first lien debt believe that they will be able to realize even 50 cents on the dollar in bankruptcy, when the most likely outcome is that there will be no purchasers for LightSquared’s spectrum at any price, because the regulatory risks will not be resolved and the ongoing Inmarsat lease obligation potentially outweighes the residual value of LightSquared’s spectrum assets.
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10.17.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 8:38 am by timfarrar
‘If seven maids with seven mops
Swept it for half a year,
Do you suppose,’ the Walrus said,
‘That they could get it clear?’
‘l doubt it,’ said the Carpenter,
And shed a bitter tear.
In what seems like a reprise of LightSquared’s assertions in July that the FCC would reach a favorable decision in September (and indeed that they weren’t even “planning for the possibility that the FCC denies LightSquared the waiver when the decision comes out in September”), LightSquared is now asserting that the company “expects guidance from U.S. regulators by year’s end”. However, last week I spoke to several knowledgeable people about the testing and regulatory process and all were unanimous in their view that an FCC decision by December was utterly implausible.
The reasons for this become very clear once the current testing process is better understood. Those tests are being conducted by government personnel at an Air Force base (most likely White Sands or Holloman, where the previous round of government live sky testing was undertaken), beginning late next week and running through November 4. That testing is confined to “cellular and personal/general navigation” receivers as specified in the NTIA letter of September 9. As of last week, I understand that there was no intention to test the Javad precision receiver with the new prototype filter, and although LightSquared is trying hard to have that included in the testing process, it is certainly not part of the cellular test plan.
However, even if LightSquared succeeds in its efforts to get some testing done in the next three weeks, it would be essentially irrelevant, because the TWG tested 33 high precision and network GPS receivers in live sky conditions (and a total of 44 high precision and 13 timing receivers in an anechoic chamber) and these would all need to be retested before conclusions can be drawn about how to move forward. Indeed it is extraordinarily difficult just to come up with a test plan on this issue, given that circuit board level integration would likely be needed to incorporate the proposed filter into quite a number of these devices, which will take months of work.
After the current round of tests completes on November 4, it will take some time for the NPEF to write-up the results of that work, and I understand that no further testing is planned by the government in the rest of November. Indeed, it may only be possible to complete a summary of the cellular and personal/general navigation testing by November 30, and a complete report may be delayed into December. Once this is understood, LightSquared’s assertions simply become unsustainable.
Another, more worrying conclusion that emerged from my discussions last week is that the effects of the LightSquared debacle may now range much wider in terms of regulatory impact for the satellite industry. Comparisons were drawn with the ITAR backlash in the late 1990s, which has scarred the satellite industry for more than a decade, as another example of Congress running amok with a technical issue that has evolved into a political soundbite. In this context, DBSD and TerreStar may find it hard to gain a waiver without giving up something significant (such as half their spectrum) and the eagerness of the FCC to defend other satellite spectrum rights may also come under question.
The MSS industry in particular looks relatively vulnerable, as it has seen a significant decline in underlying service revenue growth this year, from an average of 7% growth in 2007-10 to less than 3% growth in 2011. As a result, this cannot be good news for a sector which has seen far more capex than can be justified by future MSS revenue prospects, and may now be faced with an even more challenging path to exploit the spectrum assets which have supported several of those investments.
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10.07.11
Posted in Financials, LightSquared, Operators, Spectrum at 4:27 pm by timfarrar
So Sprint’s management team did a great job of living up to Dan Hesse’s introductory admonition in their Network Vision Strategy Update today, when they failed completely to explain either their near term cash requirements (other than to suggest they will be out raising capital “opportunistically”) and how this will be impacted by the iPhone, or how they are going to deploy a competitive LTE network with only 2x5MHz of PCS G-block spectrum (which they admit will run out of capacity by the time the network deployment is complete in 2014). Unsurprisingly, the audience applauded when this plan was described as “ridiculous” by one questioner.
In their presentation, Sprint management took every opportunity to tout their intention to use hosted spectrum from LightSquared over the wholesale access currently available on Clearwire’s network, because of the “better economics” this provides for Sprint shareholders. When pressed on whether they would provide further support to Clearwire, Sprint basically confirmed the hypothesis advanced by Pardus Capital earlier this year, that Sprint intends to drive Clearwire into bankruptcy, in the expectation that Sprint will be able to acquire Clearwire’s spectrum on the cheap. Sprint also refused to address the question of LightSquared’s GPS interference issues, suggesting in one slide that LightSquared was the primary source for incremental capacity beyond the PCS G-block and yet later insisting that LightSquared was “all upside” and they were not assuming that they would get any more money from them.
Of course, other than to indicate that it would not be providing funding to LightSquared (which is hardly surprising since Sprint currently does not have enough money to fund its own network buildout), Sprint had no answer to one perceptive questioner, who asked what would happen if LightSquared failed to raise enough money to pay for the hosting agreement, and highlighted that it is hard to see why anyone would want to invest in LightSquared when they can see what has happened (and by implication what Sprint has done) to Clearwire investors. Indeed one might very well conclude that if LightSquared does get approval from the FCC to move ahead, Sprint expects to do the same to LightSquared and pick up its assets in bankruptcy. Of course, at this point in time such plotting is virtually irrelevant, because LightSquared’s spectrum is not likely to be usable for years to come, if ever.
After this debacle, it is hardly surprising that both Sprint and Clearwire’s stock prices have fallen sharply, and expectations of a Clearwire bankruptcy have heightened significantly. However, though Sprint’s CEO pointedly remarked that “no bankruptcy case involving a wireless company has resulted in a disruption of service”, that has not been true for (fixed) wireless broadband companies such as Teligent and Winstar.
This situation also brings to mind the @Home bankruptcy in the fall of 2001 (my first introduction to US bankruptcy cases), where @Home threatened to turn off its cable modem network, thereby forcing its cable partners to pay a significant premium for “transition services” while they built out their own networks (indeed AT&T’s customers were actually disconnected because no agreement was reached). In addition, AT&T was subsequently sued for its involvement in driving @Home out of business, and settled that suit for $340M in 2005.
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10.06.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:02 pm by timfarrar
Despite the ever louder assertions from LightSquared’s CEO that he is “absolutely confident” that the company “can raise the capital that’s needed” and that the FCC “will approve” its buildout later this year, the end game for LightSquared has now become pretty clear. The company is down to its last “several hundred million dollars” and “isn’t actively raising funds”, because as LightSquared admitted at the Goldman Sachs conference last week, they need an FCC approval before any more money can be raised (and even then would need to raise a staggering $3.5B within the next 2 years!).
With payments to Inmarsat totaling $155M due between now and February and $9M of lease payments each quarter for its other spectrum, not to mention interest on its $1.6B of first lien debt and other costs of operating the company, that money will be gone within the next six months, and given the timeline set out by the NTIA, its all but inconceivable that the FCC will be able to give the approval by the end of the year, as LightSquared asserts (and would require in order to have any chance of raising more money before they have to file for bankruptcy).
As I’ve expected for several months, it appears that LightSquared are therefore planning to sue the FCC for what the company will presumably assert is the unconstitutional “taking” of its property rights, as granted in previous FCC rulings dating back to 2005. However, as one regulatory lawyer put it to me, suing the FCC is not like shooting yourself in the foot, its more like shooting yourself in the head. This is especially true in a situation where there are all sorts of references in the various FCC rulings to LightSquared’s obligations to avoid interference, and the problems could easily have been uncovered if LightSquared had decided to test their system back in 2005, rather than waiting until 2011. Indeed the FCC now seems very likely to simply wait this one out, and point to the need for further tests to justify holding off on any decision, which would potentially deprive LightSquared of any cause of action.
Today we’ve also seen further Congressional pressure building on LightSquared, which will be amplified by the GPS industry’s decision to focus attention on LightSquared’s $10B spectrum windfall that I noted two weeks ago. This letter from Trimble even points out that President Obama’s jobs bill “would require the FCC to recover a significant portion of the value of new terrestrial broadband deployment rights in certain spectrum frequencies that were originally set aside for satellite services either through competitive bidding procedures or spectrum fee authority”:
SECTION 274. REQUIREMENTS WHEN REPURPOSING CERTAIN MOBILE SATELLITE SERVICES SPECTRUM FOR TERRESTRIAL BROADBAND USE.
To the extent that the Commission makes available terrestrial broadband rights on spectrum primarily licensed for mobile satellite services, the Commission shall recover a significant portion of the value of such right either through the [auction] authority provided in section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)) or by section 278 of this subtitle.
SECTION 278. AUTHORITY TO ESTABLISH SPECTRUM LICENSE USER FEES.
…
(B) In addition, the Commission shall, by regulation, establish a methodology for assessing annual user fees and a schedule for collection of such fees on entities holding Ancillary Terrestrial Component authority in conjunction with Mobile Satellite Service spectrum licenses, where the Ancillary Terrestrial Component authority was not assigned through use of competitive bidding. The Commission shall not collect less from the holders of such authority than a reasonable estimate of the value of such authority over its term, regardless of whether terrestrial services is actually provided during this term…
As a result, its now going to be much harder for the White House to defend the FCC’s waiver, which provides even more of a reason for the FCC to simply defer any decision authorizing LightSquared’s network and giving rise to such a windfall. Thus I suspect a lot more of LightSquared’s future will be dictated by what happens at 1 Bowling Green, rather than in any DC Circuit Court litigation against the FCC. More importantly, I strongly doubt that buyers will be lining up to take over LightSquared’s spectrum rights and keep paying Inmarsat’s spectrum lease contract, while the GPS interference situation remains unresolved.
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09.30.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:06 am by timfarrar
According to the terms of LightSquared’s January 2011 FCC waiver, today is the deadline for LightSquared to “ensure that integrated, dual-mode MSS/ATC-capable L-Band devices are readily available in the marketplace…for datacards”. However, LightSquared hasn’t even mentioned these datacards for months, let alone ensured that they are “readily available in the marketplace” and the FCC’s Public Notice on September 13 did not indicate that any provisions of the January 2011 order have been waived.
Of course LightSquared will presumably argue that while there is a lack of clarity on what spectrum it will be permitted to use, it is not possible to manufacture commercial dual mode devices, and I don’t think it is likely that the FCC would take enforcement action when it is not permitting LightSquared to operate a terrestrial network (though that might not be the case if LightSquared ultimately decides to sue). Nevertheless, it will give more ammunition to the GPS community, who have been protesting about the short timelines imposed by the FCC for testing, and want to test the interference from LightSquared devices, but can now point to LightSquared missing its own deadlines for provision of these devices.
However, of much greater concern must be the fact that vulture investors are circling LightSquared (now that its first lien debt is priced at roughly 50 cents on the dollar) and may be looking for any opportunity to assert that an event of default has occurred under the first lien indentures, before all of LightSquared’s current cash has been spent. That explains why LightSquared is making such convoluted statements about its intentions for the upper L-band spectrum (proposing a filter that is completely incompatible with any terrestrial upper band operation), because admitting that it has given up on any prospects of operating there (either through a withdrawal of its original proposal or an FCC ruling that it could not operate in that band) would very likely cause a default on its debt. Thus it will be interesting to see how LightSquared addresses the datacard issue, presumably via an FCC filing to request an amended timeframe for commercial terminal availability, and how the FCC responds to this request.
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09.23.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 11:17 am by timfarrar
While physicists may now have shown experimentally that if you have almost no substance then the speed of light squared is no longer a constant, LightSquared itself has demonstrated that repeatedly in recent months, as it has shifted from one deadline and plan to another.
Yesterday, at the Goldman Sachs Communacopia Conference, LightSquared’s CFO and CMO presented yet another version of their plan to potential investors, suggesting that after they have produced a prototype filter and have completed the general navigation retest by November 30, they would then get the go ahead from the FCC which would allow them to raise additional funding at the end of this year or early next. LightSquared also stated that it has committed “up to $50M” for federal precision devices to be replaced or retrofitted (though it does not intend pay to fix commercial devices, which LightSquared suggests will cost $50-$300 to fix, though Javad indicates the actual cost will be $300-$800 for their own devices). LightSquared would then go to market with a single 10x10MHz channel, which would provide sufficient capacity through 2015, and would give plenty of time “to engage” over using the rest of their spectrum. Of course, the implication from LightSquared’s statement that it is funded “into 2012″, is that they will run out of money in the first quarter of 2012, as I indicated in my recent assessment, and that (as LightSquared also indicated) they cannot raise funding until the GPS issue is resolved.
The testing and deployment plans stated above will cause further heartburn in the GPS community and at the DoD in particular (and it is notable that the Air Force Chief of Staff and other colleagues are standing firmly behind Gen. Shelton, who was pretty much accused of lying by Mr. Falcone in his recent Fox News interview). LightSquared still seems to be insisting that production of a prototype filter is sufficient, and that this can be tested before November 30 (although they did not even mention specifically that it would be tested), despite the statements in the NTIA letter of September 9 that testing “need not be complete” by November 30. LightSquared is also is saying that it intends to use the upper part of the L-band in less than 5 years time, which would render the filters they are proposing worthless, and of course until this issue is resolved, it is not even clear that there is any point in testing the new filter.
One under-appreciated point in the debate over “precision GPS” devices is that there appears to be a complete mismatch between LightSquared’s definition of a precision device (repeated in the Goldman Sachs presentation) as one that receives a satellite augmentation signal (such as the survey equipment used by the Army Corps of Engineers) and the DoD and PNT’s definition (as used in the TWG) which includes other non-augmented wideband GPS receivers, such as those used in “advanced scientific and research applications” and “precise location and targeting” by the DoD (which certainly doesn’t rely on augmentation by a commercial service). Of course that is a dramatically different scope both for future testing and for the need to develop a filter in a huge range of different form factors, and helps to explain both the Save Our GPS Coalition’s assertion that “this is not a one-size-fits-all situation” and Gen. Shelton’s assessment that the cost of fixing the problem would be in the “billions of dollars” and would take “a decade or more”.
UPDATE: Michael Marcus remarks in his blog that he believes Gen. Shelton’s concerns are exaggerated, noting that if LightSquared is a major threat to national security then there is a serious problem with the “extreme fragility of military GPS systems” and suggesting that “More likely, however, is that the proposed system will have no impact on military users…”. Of course the debate has moved on from a purely technical one to become a major political issue (not least because President Obama used to own stock in SkyTerra) and its likely that these technical subtleties will be largely lost in the noise at this point in time.
At this point in time, confidence in LightSquared appears to be ebbing by the day (at least as evidenced by their first lien debt, which I’m told is now trading at 60 cents on the dollar, down from near par in June and is “worth keeping an eye on…as a proxy for gauging investor confidence in Falcone and his telecom dream”). However, that’s hardly surprising when their story on the GPS interference issues doesn’t come anywhere close to holding together under scrutiny, and it is far from clear whether their spectrum assets will ultimately have any value at all.
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