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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10.04.11
Posted in Financials, Globalstar, Operators at 12:03 pm by timfarrar
Yesterday, Globalstar announced that it had “placed an order with Thales Alenia Space for an additional six satellites…in addition to the 25 satellites already ordered under the 2006 second-generation constellation contract”. The press release states that:
According to the terms of the contract these satellites will cost approximately EUR 55 million and should be delivered by mid-2013. The fast track delivery, agreed upon when the contract was signed in 2006, is due to the fact that Globalstar has previously purchased EUR 12 million in long lead items that facilitate the prompt manufacture of these six spacecraft. Additionally, the incremental purchase amount is particularly price competitive due to the fact that Globalstar has already prepaid over EUR 53 million as part of its 2009 COFACE financing. Thus, combined with the EUR 12 million long lead items, Thales has already received approximately EUR 65 million for these satellites. Further payments will not be made until Thales Alenia Space initiates the manufacturing process.
This wording is somewhat strange, because Globalstar is indicating that the low cost and fast track delivery are “according to the terms of the contract”, but there is no indication that TAS has agreed to this price and timescale (or even a quote from TAS welcoming this new order). Indeed the order was placed “nowithstanding the previously announced arbitration proceedings” which according to Space News concern “pricing terms for a second batch of 24 second-generation Globalstar satellites that Cannes, France-based Thales Alenia Space had agreed to build under a contract that has since been amended”. This arbitration panel will convene in January 2012 and Globalstar “wants the arbitration panel to oblige Thales Alenia Space to pursue work on the 24-satellite batch under [the] terms of the amended contract”.
Presumably, in the absence of a negotiated resolution of the dispute, the actual manufacturing cost and timeline for these satellites will therefore remain subject to the outcome of the arbitration proceeding. It is possible that because the order is for six more satellites to be “fast tracked”, some people might now speculate that the problem with the momentum wheels on the first 6 second generation satellites, launched last October, is more serious than previously disclosed. However, I suspect that the order timing (at the end of September) is more likely attributable to an existing contract deadline, together with Globalstar’s long planned requirement to supplement their constellation once the eight first generation spares, launched in 2007, reach the end of their life, and in that case Globalstar’s need for additional satellites would not be as urgent.
UPDATE (10/5): An 8-K filing by Globalstar confirms that TAS has rejected the order “because Thales believes that Globalstar has no right to place the order”. The 8-K also describes various amendments to the terms of the credit facility and seems to indicate (by its reference to final in-orbit acceptance of 18 satellites) that (at least for the time being) Globalstar does not intend to accept the first 6 second generation satellites, presumably because the momentum wheel problem is one of the issues under dispute that will be addressed in the arbitration.
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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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09.20.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:55 pm by timfarrar
Despite, Mr Falcone’s attempts yesterday to dismiss the January 2011 FCC waiver as “irrelevant” to the question of GPS interference, it seems very likely to become a central feature in the Congressional investigations that the House Oversight Committee is now initiating.
A former FCC Commissioner has now told The Daily Beast that the “decision from January was an unprecedented and surprising development. That they would make this decision at the bureau level and not at the full commission level is just stunning.” However, even though LightSquared told the FCC just before the waiver was granted that “grant of this application is an essential building block for our network and requires quick, favorable action so that we may
continue to roll out our network” it appears there is very little understanding of why the waiver was so important for LightSquared.
Fundamentally, as Commissioner Furchtgott-Roth pointed out, “the Commission said LightSquared could use its license for exclusive terrestrial purposes”, which meant that the spectrum rights would be considered (and valued) as equivalent to terrestrial spectrum, allowing LightSquared to raise additional funds to build out its network. In fact that is exactly what LightSquared then proceeded to do, by raising $586M, secured against its spectrum assets, in February 2011.
So how much did the January 2011 waiver potentially increase the value of LightSquared’s spectrum assets by (assuming, as both LightSquared and the FCC did, that the GPS interference issues would be overcome)? Well LightSquared itself provided the answer to that question, in a report it commissioned from Brattle Group in June 2011. The report states specifically (in footnote 2) that “the economic value for LightSquared’s 40 MHz of nationwide L band spectrum dedicated to terrestrial broadband is approximately $12 billion”. This stands in stark contrast to Brattle’s assessment (on page 8-9) that “satellite licenses [would be] worth about $2 billion [for] approximately 50 MHz of commercial satellite spectrum” which “is consistent with other satellite spectrum transactions”. In particular:
“the bankrupt MSS provider TerreStar Networks Inc. is expected to be bought at auction for $1.37 billion. Assets of a similar bankrupt MSS operator, DBSD North America, were purchased for $1.4 billion in March. The major assets of both companies are licenses for 20 MHz of S-Band spectrum.”
Thus Brattle Group’s analysis implies directly that after the January 2011 waiver, which allowed it to be “dedicated to terrestrial broadband”, LightSquared’s 40MHz of L-band spectrum was worth $12B compared to the (just over) $2B that DBSD and TerreStar’s combined 40MHz of spectrum (which is similarly situated, but is still subject to the FCC’s ATC regulations) was worth.
Once this $10B windfall is more widely recognized, I think it is going to represent an enormous political problem for both LightSquared and the FCC Chairman during the upcoming Congressional hearings, making Solyndra’s $535M loan look like small beer. After all in July 2010 current FCC Commissioner Copps noted in conjunction with the MSS NPRM/NOI that he “appreciate[d] the willingness of my colleagues to raise questions regarding the need for any mechanisms—such as spectrum fees—to compensate the American people for the terrestrial use of the public spectrum resource”, which is exactly why January’s action (which was not even brought before the full Commission) was such “an unprecedented and surprising development”.
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09.15.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 10:57 am by timfarrar
Today’s hearing of the House Armed Services Committee confirmed that LightSquared is likely to become a major scandal for the Obama administration in the run up to next year’s Presidential election and it won’t be long before people are chewing their own arm off to escape from this looming debacle (didn’t someone make a film about that?). In particular, the FCC Chairman refused to attend the hearing, in what was described as an “affront to the Committee” by the Republican congressman running the hearing. Rep. Turner also stated that he would be taking up LightSquared matter through the House Oversight Committee, of which he is also a member.
UPDATE: The Republicans are going to make even more of this when they realize that (as the Wall St Journal reported last November) Soros Fund Management is also a “significant investor” in Harbinger/LightSquared. In the meantime, LightSquared’s CEO is defending the company by stating that it “has never taken one dollar in taxpayer money”, apparently forgetting Mr Carlisle’s testimony to Congress that LightSquared has received over $2M from the FBI for providing satellite services and equipment in the current fiscal year, not to mention its own estimate that the January 2011 FCC waiver was worth over $10 billion in incremental spectrum value to the company. And did he really just say that they will only be investing $8B rather than the $14B number they have used previously?
The FCC Chairman’s refusal to attend the hearing comes in the wake of allegations that the White House pressured Gen. Shelton to change his testimony to the Committee, and while Sen. Grassley is still pursuing the FCC Chairman for details of FCC communications with and about LightSquared in the run up to approval of the January 2011 waiver. My guess is that there must have been some reason for LightSquared to submit its waiver request on the Thursday before Thanksgiving and it would be reasonable to assume that they must therefore have been told by the FCC that the application would be placed immediately on public notice with an accelerated (10 day) comment period over the holiday, in the hope that no-one would notice. If that was the case then it would be quite surprising if there was no email evidence of such communications.
In the hearing itself, Gen. Shelton could not have been more explicit in his statements that there was no way to solve the LightSquared interference issues, even with LightSquared’s new filter proposal. He noted the enormous costs and the time needed for integration testing of any potential solution across the full range of military devices (he estimated there are at least a million devices deployed and it would take billions of dollars and a decade or more to fix the problem), and stated that even then he believed the precision of these devices would be affected.
LightSquared has now said that, in conjunction with an unnamed GPS manufacturer, it has developed a prototype device that will be announced next week and can “help prove that GPS and LightSquared can coexist”. Ironically of course, GPS manufacturers have been the target of a vitriolic assault by LightSquared for their supposed lack of cooperation in trying to find a solution to the interference problems.
UPDATE (9/21): LightSquared has now announced that its prototype has been developed by JavadGNSS, who claim that they will produce a “LightSquared-protected” solution by November 2011, a “LightSquared-compensated” solution by March 2012 and a “LightSquared-integrated” solution by June 2012. It remains unclear when it will be possible to conduct tests using these devices.
However, given that Trimble owns Omnistar, which provides GPS augmentation via LightSquared’s satellites, one might think that Trimble VP Jim Kirkland would know what he is talking about when he states that “a single prototype has very limited relevance to the substantial interference issues affecting this whole range of devices…[and] doesn’t help existing devices that will experience interference”. In fact LightSquared’s new prototype may end up being totally irrelevant to the testing process that has been laid out by the NTIA, under which LightSquared must come up with a filter to protect existing precision GPS devices, including those used in military applications.
Despite the presence of representatives from both the NTIA and the FCC, the hearing shed rather less light on the timeline for testing, although even the November 30 deadline for resolution of cellphone and general navigation interference came under fire from Republican members. However, it was certainly clear that as I noted yesterday, additional testing of filters for precision devices will not happen before November 30. Interestingly, one Democrat member of the committee also asked the witnesses to estimate in writing what the cost of testing would be, with a view to ensuring that LightSquared pays for all these tests, as well as any retrofitting of existing equipment that would be necessary.
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09.14.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 1:54 pm by timfarrar
In the wake of yesterday’s FCC Public Notice, it seems that LightSquared remains at least outwardly confident that it will receive an answer from the FCC about whether it can turn on its proposed network in “late December or early next year”, as it apparently suggested to the Wall St Journal yesterday. The reason for this timetable is that as I’ve previously noted, LightSquared needs to raise significant additional funding by the first quarter of 2012 at the latest.
However, the NTIA has indicated that it will only attempt to complete work on the cellular and personal/general navigation receivers by November 30, and that “given the open issues that remain with respect to precision and timing receivers, [other] work need not be completed by November 30″. The NTIA letter is also quite explicit that “there will later need to be a second phase of testing to evaluate proposed mitigation plans for high-precision and timing receivers”, so in other words the NTIA will not even begin to test these receivers until after November 30, assuming LightSquared can even manufacture a (non-prototype) filter by that time. I understand that the NTIA has set out this planned timetable because it does not expect to have sufficient resources to test both the cellular/general navigation receivers and the high-precision/timing receivers in parallel, regardless of when LightSquared provides the filter. Also its worth noting that it is far from a trivial matter to actually test the filter with the relevant precision equipment, because even if LightSquared could (in theory) produce some sort of in-line filter to attach to the antenna port of a device, there are many different devices to be addressed, and these will require a range of filtering approaches.
As a result, it looks like LightSquared’s newly mooted timetable for approval is about as plausible as their expectation on Monday that there will be “a resolution in the next month”. Thus I think we are really now in the final countdown before LightSquared will be “heading for Venus” (where presumably no-one needs GPS).
Meanwhile, I’m told Sprint is planning to be quite explicit about its Network Vision plans at the October 7 event, including which spectrum it plans to use for its LTE rollout, which clearly implies it is now focused on solutions other than LightSquared (or DISH for that matter). With Clearwire only being a useful solution for dense urban deployments, as I noted a couple of weeks ago, it appears that use of the SpectrumCo AWS-1 spectrum is the most plausible source of additional spectrum for Sprint’s wide area coverage plans, though it is by no means certain that Sprint will have a deal with the cable companies to announce by October 7.
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09.13.11
Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 4:20 pm by timfarrar
So this afternoon the FCC has joined with the NTIA in mandating further tests for LightSquared. Though the need for further testing was hardly a surprise after yesterday’s NTIA letter, what comes as a huge shock is that the FCC has offered LightSquared absolutely nothing to indicate it is minded to approve LightSquared’s terrestrial operations in the future. In particular, the FCC has not set out any timetable for completion of the additional testing (although it has stated that the “interference concerns” include “certain types of high precision GPS receivers, including devices used in national security and aviation applications”), or even specified what testing is required (and recall that the NTIA basically said for precision devices “come back when you have made a filter and we’ll think about more testing then”).
Although the FCC hinted back in August that it might be preparing to throw LightSquared under the bus, today’s Public Notice clearly indicates that the FCC has lost all patience with LightSquared and no longer believes that it is a viable near term option for creating additional competition in the wireless market. Thus perhaps Mr Falcone’s next call to the FCC Chairman ought to involve a bit of Shakespeare: Et tu, Julius?
After this ruling, the LightSquared rollout must now be regarded as being suspended indefinitely, and its hard to see where the company (and Harbinger) goes next. My best guess is that it will end up like Iridium back in 1999, where after a few months of utter panic in the spring of 1999, there were three distinct stages to the bankruptcy. In the first stage (lasting about six months), the company and its advisers claimed that the assets were still worth billions of dollars and all they needed was a bit more money. In the second stage (lasting most of 2000), they realized that wasn’t true and struggled even to find a bidder who was willing to pay pennies on the dollar (Iridium sold for $25M after investing $5B in its network). In the third stage, the creditors then spent years suing whoever they could (in that case Motorola) to try and recover their losses.
In this case, while it may take a couple more months before we finally see the end game emerge, its hard to see why anyone is going to fund the enormous costs necessary to keep the LightSquared plan on track, including the ongoing payments to Inmarsat (and perhaps to Sprint as well) for very long in the face of a completely undefined timetable for resolution of the outstanding issues. Its equally hard to see who, other than Inmarsat, might buy these assets, and even then the price would likely be only a few hundred million dollars at best (assuming Inmarsat justifies such an acquisition based primarily on a satellite-based business plan). Then, no doubt, there will be litigation against whoever can be blamed (which of course is why the FCC is being so careful to protect itself in the Public Notice).
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09.12.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 8:37 am by timfarrar
On Friday Sept 9, a letter was sent by the NTIA Administrator Lawrence Strickling to the deputy secretaries at the DoD and DoT, setting out the proposed way forward on LightSquared testing. This letter proposed that a joint testing plan should be developed “as expediously as possible” in order “to validate data on the performance of cellular and personal/general navigation Global Positioning System (GPS) receivers in light of LightSquared’s modified proposal to confine its operations to the lower 10MHz signal (1526-1536MHz)”. The NTIA requests that “the program be designed to allow for completion of testing and analysis by November 30″.
While at first sight this seems positive for LightSquared, as it will allow conclusions to be drawn before the end of the year on whether interference concerns for hundreds of millions of consumer devices have been resolved, the killer blow is in the follow-up paragraphs, which note:
All parties, including LightSquared, have agreed that LightSquared’s operations in the lower 10MHz signal will cause unacceptable interference to the high precision receivers tested by the TWG. Accordingly LightSquared is undertaking to procure the design and manufacture of a filter to mitigate these unacceptable impacts. LightSquared has acknowledged in meetings with NTIA that it will not commence commercial operations unless and until the federal agencies test the filter and conclude it is effective at eliminating unacceptable overload without degrading the performance of the receivers. Given this commitment, we see no reason for any further testing of high-precision receivers until LightSquared presents its filtering solution to the Federal agencies for testing and evaluation.
Thus LightSquared has been forced to abandon its recent assertions that it can go ahead with its planned rollout, because only 500K-750K high precision receivers are likely to be affected and it can coordinate its rollout so that the impacts are minimal. Indeed LightSquared now has to actually manufacture a filter before testing can even begin. That certainly pushes a decision point until the summer or fall of 2012 at the very earliest, and more likely than not until after the 2012 presidential election and beyond the end of Chairman Genachowski’s term at the FCC. As I pointed out last week, LightSquared’s proposed filter characteristics also represent a complete abandonment of any prospects of ever using the upper 10MHz band.
Remember also that the timeline for a decision to be reached does not include the years that will be needed to actually implement any filter across the installed base of precision GPS equipment. At last week’s House Committee hearing, one of the witnesses stated that “Even if some new, as yet unforeseen, [filter] technology did appear, the industrial, commercial and public sector users of GPS equipment routinely take up to 15 years to complete a normal replacement cycle”. The FCC can impose a shorter timeframe for the transition, but this would impose a significant burden on precision GPS users unless LightSquared was required to pay for the necessary equipment and installation.
Thus, LightSquared is now faced with a major funding crisis, because it seems there is no way it can survive with its current resources until it receives final approval to move forward (assuming that even happens). It is also very hard to see why anyone would want to invest in the company at this stage, given that Sprint has a second lien on LightSquared’s spectrum assets and therefore (even if the spectrum is worth more than the first lien debt, which I doubt because LightSquared now has at most only 2x10MHz of potentially usable L-band spectrum) there are no hard assets to pledge for further fundraising and apparently no meaningful take-or-pay contracts from LightSquared’s growing list of partners either.
UPDATE: In what feels like something out of Alice in Wonderland (“Why, sometimes I’ve believed as many as six impossible things before breakfast”), LightSquared’s CEO is claiming that the letter from the NTIA is just what LightSquared needed at this point in time because it “will finally allow LightSquared to put concerns about the impact of its network on GPS to rest”, while another LightSquared executive says “there will be a resolution to the company’s GPS interference issues within a month”. In the meantime (as I noted back in May), LightSquared has admitted that it has abandoned its plans for initial network deployment in Denver and Phoenix, along with its commitment to the FCC to cover 100M people by the end of 2012.
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