01.24.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:27 pm by timfarrar
LightSquared has now confirmed that it will not “continue to roll out our network and meet the rigorous construction timetable that the Commission has made a condition of our authorization” unless the FCC takes “quick, favorable action” to approve its updated business plan, which is described as “an essential building block for our network”.
This answers one of the questions I had last week, when Communications Daily suggested that LightSquared’s request “isn’t expected to be taken up right away”, as it repeats the statement that LightSquared made to the NTIA in its January 6 letter. However, as I noted then, the FCC would presumably need to be convinced that LightSquared is able to raise the funding to move forward before approving the application. Thus it seems there is a binary outcome – either LightSquared does have (or shortly will have) the partners and funding to move forward, in which case the FCC would most likely approve the waiver request quickly, or it does not, in which case the FCC would defer action, making it increasingly harder for LightSquared to attract the partners it needs.
It is interesting to note one subtle difference between the two letters that LightSquared sent to the NTIA and FCC, which perhaps reflects the different audience, but could also indicate that LightSquared is unsure whether the NTIA will ever be convinced to approve its network. The January 6 letter to the NTIA promises that the “final report [on interference issues] will be submitted to the FCC and NTIA so that those agencies may assess progress. If no progress, or insufficient progress, has been made, the FCC and NTIA would review the open issues and require resolution, giving due consideration to the public interest benefits of operation of the LightSquared network and the nationwide GPS system”. However, the January 21 letter to the FCC proposes simply that “we are willing to accept as a condition on a grant of our request the creation of a process to address interference concerns regarding GPS and, further, that this process must be completed to the FCC’s satisfaction before LightSquared commences offering commercial service”. In other words, the NTIA would no longer have control over the process of evaluating the interference concerns, and would therefore presumably be unable to veto the LightSquared network on interference grounds, if the FCC was determined to allow its operation.
One consultant suggests that it is the fault of the GPS community that receivers were not deployed with “proper” filters, which would have been “more expensive”. However, the US GPS Industry Council’s filing on January 7 highlights that GPS receivers may need relatively high sensitivity in the L-band satellite downlink (1525-1559MHz) because this band is also used for Differential GPS satellite broadcasts. As a result, it is hardly surprising that there could be the potential for problems (although the specific outcome will depend on whether GPS receivers actually become overloaded by any excess noise).
In this regard, another filing was made on Friday by Qualcomm, which indicated that they had examined some of the interference issues and determined that a phone using Qualcomm’s AGPS could “avoid self interference to the GPS receiver operating in the GPS L1 band when simultaneously transmitting data via terrestrial LTE on the L Band” by using a currently available filter. However, Qualcomm “has not determined whether this filter provides sufficient protection to avoid interference to the GPS receiver from LTE base stations operating on the L band”. The letter also notes that “Qualcomm is now in the process of evaluating the extent of interference from LightSquared L Band LTE base stations (i.e., downlink) into the GPS receivers of cell phones using Qualcomm’s AGPS solution, particularly legacy phones already in the market today, given the close proximity of the L and GPS L1 bands”.
Given LightSquared’s “record of concern and cooperation” and its “demonstrated…ability…to resolve potential interference issues” with GPS it is somewhat surprising that the potential for interference from LightSquared L Band LTE base stations into GPS receivers has apparently not previously been evaluated. It is also surprising that to date there has been no comment in the record from Nokia Siemens Networks, which is responsible for building and deploying the base stations for LightSquared and might therefore be expected to have a significant interest in resolving the issue (not least to protect its $7B contract).
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01.21.11
Posted in Financials, Handheld, Operators, Spectrum, TerreStar at 11:09 am by timfarrar
TerreStar Networks has now filed its Monthly Operating Report for December, which gives details of its revenues and cost of goods sold (COGS). In December 2010, TerreStar reported total revenues of $113,479 against a total COGS of $615,155, which compares to revenues of $91,626 and COGS of $125,189 in November 2010. However, TerreStar has not stated whether it is in compliance with the terms of the DIP Agreement, which requires both the “Roam-in Revenue??? and the “number of subscribers” to be no less than “85% of the amount set forth in…the Agreed Budget and accompanying projections” as of December 31, 2010. The target number of subscribers is not disclosed in the DIP Agreement, but the Agreed Budget details the Roam-in Revenue (i.e. excluding handset sales) as $89,000 for December 2010. Under the DIP Agreement, this information should have been made available to the “Administrative Agent and the Lenders” (although not necessarily disclosed publicly) within 3 business days after the end of each fiscal month.
Due to the lack of any breakdown for the December revenues in the Monthly Operating Report (and the completely inaccurate supporting comment that “Our revenue currently is derived primarily from a spectrum-leasing agreement”, when in fact it is TerreStar Corporation that has a spectrum leasing agreement with Harbinger), it is quite hard to determine whether TerreStar is meeting the covenants in the DIP Agreement. At an ARPU of $50 per month for the Genus phone as envisaged in the Blackstone business plan, then there would need to have been an average of 1780 Genus subscribers during the month to produce $89K of service revenues in December. However, my assumption is that the real ARPU for TerreStar (once AT&T’s share of the revenues is subtracted) is significantly lower than this figure, implying that potentially in excess of 5000 phones would need to have been activated by the end of December (to produce a month average subscriber base generating sufficient revenue) to meet this target.
It is hard to tell how many phones were shipped to distributors prior to November, as TerreStar has not filed a 10-Q for the third quarter of 2010 or a monthly operating report for October 2010. It is possible that no new phones and accessories have been sold to distributors, and the vast majority of reported revenues in December were “Roam-in” service revenues from AT&T. However, TerreStar reported COGS of over $615K in the month, and it would be somewhat surprising if this was all free equipment for demos, replacements, etc. (especially as we understand TerreStar did not originally intend to supply free demo phones to distributors). Notably, the Agreed Budget envisaged $321K of equipment sales during December, which far exceeds the total revenues actually generated during the month. Given the rapid expansion in “Roam-in” revenue in what was disclosed of the Agreed Budget ($10K in October, $40K in November, $89K in December) it also seems likely that the January 2011 budget target would require further substantial growth in sales, and therefore would be even more challenging to meet.
UPDATE: I’m told that no more than a few hundred Genus phones have been sold to end users (and many of these are likely to have been purchased just for an initial test of the service), so it is inconceivable that the DIP covenants related to “Roam-In” revenues and subscribers could have been met at the end of December.
FURTHER UPDATE (2/11): On February 3, TerreStar filed the third and fourth DIP amendments, confirming that the the covenants related to Roam-In Revenues (Section 6.11) and Minimum Subscribers (Section 6.12) had not been met at the end of December 2010 or January 2011.
The next question is where TerreStar goes from here with the Genus phone. Will it be able to reach agreement with suppliers such as Elektrobit to keep supporting the phone (especially when Elektrobit is owed a substantial sum of money by TerreStar)? Would any breach of the DIP conditions simply be waived, and decisions on the future of the Genus phone postponed until after the company emerges from bankruptcy? With all the uncertainty about what will happen on MSS-ATC spectrum, that would seem to be logical. However, the apparent lack of appeal for this supposedly game-changing phone also highlights why LightSquared is so keen to be granted permission for its partners to offer terrestrial-only services, and I would ultimately expect TerreStar to follow the same path.
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01.20.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:38 pm by timfarrar
According to Communications Daily, it appears that LightSquared’s request for the FCC to approve its revised business plan “isn’t expected to be taken up right away”, and the FCC’s forthcoming order related to the July 2010 MSS spectrum NPRM will not propose a Further NPRM to deal with the issues raised in the Notice of Inquiry (i.e. relaxation of the ATC gating criteria) at this point in time.
Today’s T-Mobile USA strategy presentation also poured cold water on expectations that T-Mobile has a pressing need to acquire more spectrum, with the company stating that it would not need additional spectrum until 2014. Interestingly, T-Mobile also stated that it expected demand to grow at a CAGR of 60% p.a., drastically lower than the 93% p.a. growth in the FCC’s October 2010 Mobile Broadband Spectrum Forecast (to put this into perspective it would mean data demand increasing by a factor of 6.5 times between 2010 and 2014, not 14 times as the FCC model assumes, completely eliminating the need for any additional spectrum at all in 2014 under the FCC’s calculations). This lack of urgency will allow T-Mobile to run a pretty effective Dutch auction between Clearwire and LightSquared, to see who is prepared to offer the best deal, as both companies get increasingly desperate to secure a partnership.
It is also quite striking that even though T-Mobile is still a potential buyer of spectrum from Clearwire (and would presumably look to buy 40MHz of national spectrum), the amount that could be raised from Clearwire’s spectrum sale is stated as “up to $2 billion“, implying that T-Mobile would be prepared to pay no more than about $0.17 per MHzPOP for Clearwire’s spectrum. Although, as I’ve pointed out before, there are numerous differences that need to be taken into account in drawing comparisons with LightSquared’s 40MHz of L-band ATC spectrum, anything even remotely close to a $2B valuation for LightSquared would be disastrous for Harbinger, given it has contributed “$2.9 billion of assets” to LightSquared and the $850M secured credit facility that closed in October 2010 would be first in line for proceeds from any asset sale.
This leaves LightSquared hanging on the telephone waiting for positive news from both the FCC and T-Mobile. It wouldn’t be surprising if the two were closely connected, because T-Mobile would presumably want the flexibility to offer terrestrial-only service in order for it to invest, and the FCC wouldn’t want to stick its neck out for LightSquared unless it was sure of the company’s viability. In the interim, it will be interesting to see if LightSquared follows through on its suggestion to the NTIA that it “requires quick favorable action [on its FCC request] so that we may continue to roll out our network” or whether it continues to move forward with network deployment so as to meet its original plan to have “a commercial launch before the third quarter of 2011 providing service to up to 9 million POPs”. However, as the song suggested “If I don’t get your call then everything goes wrong…”
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01.14.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:55 am by timfarrar
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…”. That quote from Charles Dickens certainly seems a good summary of the current supposed spectrum crisis, and the last few weeks have been first the best of times and now the worst of times for Harbinger and LightSquared. Initially it looked as if luck was on their side, as their satellite antenna problem was resolved (something estimated to us as less than a 20% probability by technical experts) and the FCC seemed poised to approve an updated business plan that would enable LightSquared’s partners to offer terrestrial-only service and handsets. But now, an intervention from the NTIA and other US government departments has left observers wondering whether and how LightSquared will be able to move forward.
However, I’m more intrigued by the differences between the two cities of New York and Washington DC, as I wonder if, when all’s said and done, this will end up as a tale of how the ambitions of a New York financier were stymied by the bureaucratic and regulatory complexities of Washington DC. In that context, its particularly interesting to look at another contrast between the two cities, namely what you can get for $20M in each place.
In New York, for example, $20M will cover less than half the cost of a mansion, especially if you need to pay for extensive renovations and hire a security guard to “push and jostle” nosy photographers. On the other hand, in Washington DC, $20M would pay for an entire federal agency for six months, given that the estimated annual budget of the National Telecommunications and Information Administration (NTIA) is only $40M for FY2010 and $46M for FY2011. Of course, despite what some people might suggest, it appears that not everything in Washington DC is for sale.
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01.12.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 11:41 am by timfarrar
In the game of musical chairs being played by spectrum holders such as Clearwire, LightSquared, TerreStar, DBSD and NextWave, it looks like we may be approaching the point at which the music stops and we see who has secured a strategic partner and who hasn’t. At the moment there certainly appears to be a scramble to get into T-Mobile’s chair, as Clearwire reinforces its efforts to secure funding and Harbinger looks to move forward with its LightSquared buildout.
Clearwire’s newly appointed director, Ben Wolff, is taking the role of strategic adviser to secure a deal, with the most plausible outcome involving an equity investment from T-Mobile. In December, Sprint indicated it would be receptive to such a deal (and later turned down the chance to invest more money itself), after seemingly vetoing that prospect back in September, and pushing instead for Clearwire to move forward with a spectrum sale. However, the spectrum sale apparently went pretty badly, given that expectations were quickly downgraded from “$2.5 billion to $5 billion” to a more recent “up to $2 billion“.
LightSquared is also expected to announce its next moves pretty soon, given that LightSquared said last October it would “accelerate its planned implementation of the Phase 2 [spectrum lease] agreement [with Inmarsat], which now will take effect by the end of the year”. However, if a Phase 2 notice had been given to Inmarsat last month, then I understand Inmarsat would have been obligated to make a public release to that effect. LightSquared said at that time it had “already signed wholesale distribution agreements ‘and is in advanced negotiations with numerous potential partners’”, although with the exception of last summer’s 1.4GHz spectrum deal with Airspan, we are still waiting to hear about who those partners might be.
It seems that LightSquared may have to wait for approval from the FCC for the proposed change to its business plan before it is able to finalize its next round of investments and partnerships. Somewhat to my surprise, this did not get approved in conjunction with the FCC’s net neutrality ruling in December, apparently because of objections from the GPS Industry Council about potential interference with GPS receivers. In fact, the GPS Industry Council has now proposed that action on the LightSquared waiver application should be deferred (for what appears to be a 3-6 month period) until the NTIA has analyzed this interference question. Such a delay would clearly make it all but impossible for LightSquared to meet its objectives of launching commercial services later this year, and calls into question its ability to meet the FCC deadline of December 31, 2012 for LightSquared to offer service to 100M POPs. Of course, if delays in regulatory approvals caused LightSquared to miss this deadline, then the FCC would presumably issue a waiver. However, one key issue is that Inmarsat has 30 months from the point at which LightSquared issues its Phase 2 notice to make this spectrum available to LightSquared, and without this additional spectrum the capacity of LightSquared’s terrestrial LTE network would presumably be rather constrained.
How all these regulatory challenges are impacting the considerations of LightSquared’s potential partners is hard to tell, but this series of events (now potentially complicated further by the Mexican L-band satellite contract with Boeing in December) does help to explain why it has been so difficult for ATC spectrum holders to find strategic partners, and why MSS spectrum assets generally trade at a discount to similar terrestrial spectrum.
UPDATE: The NTIA has just filed a rather devastating letter with the FCC, indicating that “Several Federal agencies with vital concerns about this spectrum band, including the Departments of Defense, Transportation and Homeland Security, have informed the NTIA that they believe the FCC should defer action on the LightSquared waiver until these [GPS] interference concerns are satisfactorily addressed”. Its not clear whether the FCC will now be in a position to approve the Draft Order and Authorization that it had sent to the NTIA (according to the DoD letter attached to the NTIA submission) when it is already facing significant criticism for supposed overreach in the net neutrality proceeding. If that doesn’t happen, then it will be interesting to see where Harbinger goes from here.
FURTHER UPDATE: LightSquared’s CEO sent a letter to the NTIA on January 6 offering $20M to fund a six month study of the GPS interference issues. Obviously LightSquared wants this study to take place after FCC approval of its new business plan (which it notes is “an essential building block for our network and requires quick favorable action so that we may continue to roll out our network”), whereas the NTIA has requested that this approval should not be granted until after the study has been completed and their concerns addressed.
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12.20.10
Posted in LightSquared, Operators, Regulatory, Spectrum at 1:54 pm by timfarrar
Today, Boeing announced an agreement with the Mexican government to build the MEXSAT system, including two new L-band satellites with 22m diameter antennas (which appear to be a copy of the SkyTerra-1 and 2 satellites), plus a smaller FSS satellite which will be purchased from Orbital Sciences. This order has been the subject of speculation for several months, because of its implications for the future of Satmex.
However, it also has significant implications for L-band coordination, because the March 2010 order, which approved LightSquared’s re-use of the spectrum assigned to Mexico’s previous generation Solidaridad satellites, did not grant “any authority to share spectrum with [Mexico's planned next generation] system in the absence of coordination”. Indeed the Mexican government’s comments in that proceeding claimed that the power spectral density (PSD) level proposed by SkyTerra/LightSquared “would be harmful to service operating levels circulating through the MEXSAT network”.
With LightSquared now trying to gain approval for its updated business plan, over the protests of the GPS Industry Council and others, and move forward with the buildout and commercial launch of its ATC network next year, this new Mexican system means that there will have to be renewed efforts to reach a new L-band coordination agreement. It will also be interesting to see whether this has any additional implications for the LightSquared business plan, given that LightSquared asserted in requesting approval of its application that the “proposed reuse is critical to the successful deployment of SkyTerra’s next-generation system, particularly with respect to accessing spectrum that is sufficiently contiguous to provide broadband services”.
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12.10.10
Posted in LightSquared, Operators, Regulatory, Spectrum at 10:14 am by timfarrar
Apparently following the principle that the enemy of my enemy (i.e. AT&T and Verizon) is my friend, LightSquared has garnered significant support for its business plan from the Nevada State Democratic Party, the Progressive Leadership Alliance of Nevada, and other organizations, who you wouldn’t normally expect to see cheering for “one of the world’s richest hedge fund managers“. However, absent from the debate (at least so far) are those who applauded the actions of the FCC when it “pulled the plug on a plan to use a rigged auction to award spectrum to a telecom start-up [M2Z] backed by billionaire venture capitalist and Democratic campaign donor John Doerr”, who might be expected to be opposed to a plan that could very well prevent the US Treasury from gaining “compensation for the step-up in value” when MSS spectrum is used for terrestrial-only services.
It is notable that LightSquared’s application comes in the midst of the net neutrality debate, with proposals apparently set for a vote at the FCC’s December 21 meeting. With rumors that the proposals will largely exclude wireless networks from having to comply with net neutrality obligations, it seems very plausible that a deal could be in the works to approve LightSquared’s open access network at the same time, and thereby demonstrate to net neutrality advocates that there will be at least one 4G wireless network that will undertake to comply with net neutrality rules.
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12.09.10
Posted in LightSquared, Operators, Regulatory, Spectrum at 4:01 pm by timfarrar
A host of comments have now been filed with the FCC in response to LightSquared’s recent updates to its ATC business plan. These include supportive comments from numerous individuals and “public interest organizations“, plus notably a comment from T-Mobile, which also urges the Commission to rule on LightSquared’s application expeditiously, rather than deferring it to a more general proceeding.
LightSquared itself filed reply comments, justifying its showing of “integrated service”, although it is pretty easy to identify areas where LightSquared has carefully skated around the issue. For example, LightSquared argues that its arrangement with Qualcomm “eliminates price as a factor for end users deciding whether to use dual-mode handsets”, although of course if a handset designer can leave out the satellite functionality (especially if it would need a relatively large internal antenna similar to that inside the Genus phone) then the handset could be smaller and more attractive to end users (as Leap Wireless and others have argued in the NPRM/NOI proceeding).
It now seems that the FCC has a decision to make in the very near term, about whether to approve the modification request and potentially help Harbinger move forward with potential deals such as that apparently envisaged with Leap Wireless, or to delay approval and potentially risk the future of LightSquared and Harbinger. Certainly Harbinger appears to be under considerable pressure from the recent LightSquared satellite antenna failure, and continued scrutiny in the press, and at the end of this month, Harbinger’s investors will have to decide whether or not to follow through with their redemption requests. LightSquared will presumably also have to pay over $100M to Boeing on account of its payment deferrals in the next week or two, and exercise its Phase 2 option with Inmarsat which was promised by the end of the year.
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12.06.10
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:02 pm by timfarrar
LightSquared has received significant backing from the highest levels of FCC as the company moves forward with deployment of its 4G LTE network, including several statements by FCC Chairman Genachowski in support of LightSquared’s public unveiling in July and its plans to donate 2000 handsets to the Indian Health Service, announced in September. Now we will have to wait and see whether the FCC will act to approve LightSquared’s recently updated ATC business plan, which met with significant opposition from cellular interests last week. These comments requested that this “novel re-interpretation of the Commission’s integrated service requirement” be deferred for consideration as part of the currently pending MSS rulemaking proceeding, which would likely delay any resolution of the request by many months.
Unfortunately it seems that LightSquared doesn’t have the friend in high places that really matters, as an act of God appears to have left the SkyTerra-1 satellite (which was launched on November 14, carrying “with it, the ambitions of one of the world’s richest hedge fund managers, Philip A. Falcone“) experiencing problems in deploying its 22m L-band antenna. While we probably won’t know until the end of this month whether or not the problem can be solved, if it can’t, then the satellite would very likely be unable to communicate with LightSquared’s handsets, and the company would be forced to launch the SkyTerra-2 satellite (which may or may not have been intended to remain a ground spare). Space News estimated last week that this could probably be done “within a year”, but that was before Sunday’s Proton rocket failure, which fell into the Pacific Ocean along with its cargo of 3 Glonass satellites. Although SkyTerra-2 currently is listed as having a March 15, 2011 launch date, it seems hard to imagine that it would be possible to go ahead with the launch at that point in time, unless the antenna was uninsured (as happened with TerreStar-1 in the wake of the Solaris problems last year).
In the meantime, it will be interesting to see whether and how LightSquared moves forward with the buildout of its terrestrial LTE network, which it is required to construct “without regard to satellite service” under the second of the conditions agreed with the FCC in March this year. Given the apparent potential for conflict between this condition and the original ATC gating criteria (which require satellite service to be commercially available before the ATC network is launched), it will be particularly fascinating to see what the FCC does next.
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11.30.10
Posted in Financials, Handheld, Inmarsat, Operators, Spectrum, TerreStar at 5:51 pm by timfarrar
TerreStar has finally filed the exhibits to its Disclosure Statement which set out more details about its Genus business plan and the valuation of its spectrum, and though I don’t think Blackstone are paying tribute to Leslie Nielsen when they respond “I am serious” (and don’t call me Shirley), their Genus business plan has caused much mirth in the MSS industry.
I’ve previously pointed out the similarities to the launch of Iridium (and ironically Blackstone were also the financial advisers to Motorola in their attempts to restructure Iridium after it filed for bankruptcy in 1999). Just as back then, it seems hard to understand how TerreStar can hope to capture 41K subscribers with an average wholesale ARPU of $50 by the end of 2011, let alone 156K subscribers with an average wholesale ARPU of $42 by the end of 2014 (almost equal to the size of the entire North American handheld MSS market today), given the reception that the Genus phone has received so far in the market, and the recent laughable attempt to sell the phone to consumers.
However, it is interesting that TerreStar has now initiated a formal sale process for its assets in an attempt to gauge their market value. This has also generated some amusing responses, but of more interest is whether this means TerreStar has reached a deal with Harbinger to avoid a fight over the “unsecured creditors’ entitlement to excess value of TerreStar-2 (after repayment of the Purchase Money Credit Agreement)” which is acknowledged in the Liquidation Analysis to be an issue of contention (and is presumable one reason why Harbinger has been buying up TerreStar Networks’ 6.5% Exchangeable Notes). Certainly, this process would be an obvious way to find out whether one or other of the European S-band licensees (Inmarsat and Solaris) really is interested in buying the TerreStar-2 ground spare, in order to meet their license obligations to the European Commission, and to see whether the $200M valuation placed on this satellite by an appraisal back in August can actually be realized in practice.
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