11.19.10
Posted in Financials, LightSquared, Operators, Regulatory at 10:34 am by timfarrar
Back in March, we noted the rumors that Huawei could end up building and vendor financing the LightSquared network to the tune of $1B+ and highlighted the potential security concerns that would be associated with such a move. Today the Wall St Journal’s story on Huawei appears to confirm this rumor, stating that Huawei’s “acquisition attempts since [2008], including an attempt to buy into Harbinger Capital LLC’s high-speed wireless network, have been quashed due to security-related concerns as well, according to a report by the U.S.-China Economic and Security Review Commission”.
This raises the interesting question of whether Huawei was one of the potential funding sources that Harbinger was counting on when it decided to buy SkyTerra in 2009, and whether Nokia Siemens Networks (NSN) was actually the second choice as prime contractor to build the LightSquared network, after the Huawei deal fell through. It also leads us to wonder whether NSN will eventually provide substantial vendor financing for LightSquared, and at what stage that will be announced. With Reuters reporting last week that Nokia and Siemens were making “little progress in efforts to find a deep-pocketed partner for their ailing telecom gear venture” it might now be more difficult for NSN to make a major funding commitment to LightSquared in the near term.
Permalink
11.14.10
Posted in Financials, LightSquared, Operators, Spectrum at 5:42 pm by timfarrar
Am I the only person to be somewhat suspicious about the timing of this week’s revelations of withdrawal requests from Harbinger’s funds and investigations by the Securities and Exchange Commission and U.S. Attorney’s office into whether the firm “misled investors” and “improperly allowed some clients to withdraw money following the financial crisis while barring others from doing so”? Though these stories have just emerged, it appears that the withdrawal requests were submitted at the end of September, while the investigations began this summer. As a result, I have to wonder if the timing of these stories was intended to derail the next stage of LightSquared’s plans.
This last week has seen wireless operators such as US Cellular and Leap Wireless state explicitly that they could be open to becoming wholesale customers of LightSquared. T-Mobile also appears to be keeping its options open, given it has not yet struck a deal with Clearwire as was being negotiated back in September, and T-Mobile also indicated potential interest in LightSquared’s capacity this week. Whether or not these operators want to do a deal with LightSquared today, it is certainly in their interests for LightSquared to survive, and to be available as a potential source of capacity when they do reach a decision on 4G. That would, at the very least, help to hold down the price of alternative spectrum (from a source such as Clearwire or a future FCC auction), and their expressions of support come at an important moment for Harbinger.
LightSquared stated over a month ago that it had “already signed wholesale distribution agreements” and was “in advanced negotiations with numerous potential partners”. It also said that the company intended “to accelerate its planned implementation of the Phase 2 agreement, which now will take effect by the end of the year”. With today’s successful launch of the SkyTerra-1 satellite, I had expected to see an announcement of at least some of these partnerships in the very near future, in conjunction with additional equity investments (whether from wholesale partners, or perhaps more likely from other financial investors) to validate the valuation that Harbinger has placed on LightSquared. However, with Harbinger’s clients fuming, we will have to wait and see whether the recent revelations will delay or even derail these plans.
Permalink
11.08.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 4:18 pm by timfarrar
Last Thursday, Clearwire announced that it was laying off 15% of its staff (as I suggested a couple of weeks ago), in an attempt to conserve its cash resources, which are only expected to last “through the middle of 2011″. When news first emerged of the Clearwire spectrum auction back in mid-October, I suggested that it was going badly and appeared to have been leaked by Clearwire itself, and it certainly doesn’t appear that the auction has concluded with a positive outcome (i.e. with T-Mobile agreeing to pay a significant amount for the 40MHz of spectrum that Clearwire was trying to sell).
The question now arises of what this means for LightSquared, which has also been pursuing a deal with T-Mobile as a potential wholesale customer and/or strategic partner for its 4G LTE network. Although T-Mobile appears not to have struck a deal with Clearwire, and thus is at least potentially still a partner for LightSquared, it is far from clear whether this is good news. If T-Mobile’s interest in Clearwire was thwarted because of roadblocks thrown up by Sprint (i.e. Sprint’s unwillingness to share a network with a key competitor), then it is quite possible that a deal with LightSquared could still be on the cards. However, if instead T-Mobile has decided that the price of spectrum is only going to go down over the next 6-12 months (and perhaps even in the medium term), as Clearwire and LightSquared become increasingly desperate for a deal, then that would certainly be bad news. T-Mobile might even be waiting to see if the 2GHz MSS spectrum could present another possible alternative, once the TerreStar and DBSD bankruptcies are resolved, given that this spectrum is closer to its existing PCS and AWS holdings than either the LightSquared L-band spectrum or the Clearwire 2.5GHz spectrum, and could even be available without ATC restrictions (via an incentive auction) in a couple of years’ time.
Whatever the reason, if T-Mobile does delay its decision on 4G spectrum (which might well be suggested by the recent rebranding of its HSPA+ network as 4G), then that would tend to indicate that it is not feeling too much pressure from the supposed “spectrum crunch”. While that may be at least partly because it won’t be offering the iPhone anytime soon, it will be interesting to see whether it also prompts more people to question the received wisdom about future spectrum demand.
Permalink
11.05.10
Posted in Inmarsat, Operators at 4:01 pm by timfarrar
In October 2009, Inmarsat announced that Andy Sukawaty would stay as Chairman and CEO until September 30, 2011, and then move into the role of Chairman until at least September 30, 2012. Typically, Inmarsat has announced personnel changes at the top of the company as much as a year in advance, such as when Michael Butler stepped down from his role as President of the company in April 2009. Inmarsat has also just undertaken various changes of responsibility related to establishing its new Global Xpress business, which will be based in Switzerland. As a result, it appears logical that Inmarsat may announce in the near future who is expected to take over as CEO next year, perhaps even as soon as Inmarsat’s Q3 results call on Monday.
If this happens, it will be very interesting to see if Inmarsat goes outside the company or promotes an internal candidate. Several people in the MSS industry have suggested that Jim Parm, the CEO of Stratos, could be a potential internal candidate, although this might raise concerns amongst other distributors about whether Stratos will be managed at arms length in the longer term. However, earlier this year, Andy Sukawaty indicated in an interview that Inmarsat was “seeking talent” in “senior general management roles”, noting that the recession had made “even C-suite executives available”. There are few obvious external candidates for the Inmarsat CEO position in either the MSS or FSS industry, but more possibilities in the US defense sector or perhaps even the wider telecoms sector. It certainly seems plausible that a defense executive could potentially be a good match for Inmarsat, given that Global Xpress will further reinforce Inmarsat’s dependence on the US DoD as its leading customer.
Permalink
Posted in Broadband, Inmarsat, Operators, VSAT at 3:24 pm by timfarrar
On its results call last night, Viasat said that it is soliciting preliminary technical proposals from manufacturers for a ViaSat-2 Ka-band satellite to complement the ViaSat-1 spacecraft set for launch in the first half of 2011. Viasat is also aiming to sell around 10% of its Viasat-1 capacity to government users and another 10% of the capacity for mobile applications. With the possibility that the Viasat-2 satellite could add beams to target areas such as the North Atlantic ocean and/or various oilfields, it now seems plausible that Viasat will seek to challenge Inmarsat’s Global Xpress project directly, in several of its Inmarsat’s planned target markets (government, energy and maritime).
This would not be particularly surprising, because it is our understanding that (despite significant efforts earlier in the year) Viasat is not on the list of bidders for the Global Xpress ground infrastructure contract, which Inmarsat is expected to award early next year (and for which bids were received in mid-October). Inmarsat has a major advantage in that Global Xpress will provide coverage around the world, including hotspots for UAV demand such as Afghanistan. However, Viasat has dramatically more capacity on its satellite and so it could potentially cherry pick some high revenue opportunities in North America and the surrounding areas.
On balance I think Inmarsat is better placed to win this battle, because we have projected for many years that the satellite consumer broadband market would not live up to Viasat’s very high expectations. Indeed I still expect that the most that Viasat and Hughes can hope for in the North American consumer broadband market is 2-3 million customers between them, with growth stalling in 3-4 years time as terrestrial buildout continues. Fundamentally, I have a hard time seeing satellite broadband as anything other than a last resort technology, however much capacity Viasat throws at the customer, because the constraining factor is the need to install a relatively costly terminal, which then requires ARPUs of $50 per month and up, far above expectations for terrestrial alternatives (especially in less wealthy rural areas).
As a result, Viasat could well be left with excess capacity if it does decide to contract for Viasat-2 before Viasat-1 has proved its commercial potential, as was stated on the call. Of course that could lead to some destructive price cutting to capture the limited number of regional customer opportunities, but just as in the MSS market when regional players have made inroads in certain areas, Inmarsat could well emerge relatively unscathed.
Permalink
11.01.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 5:59 pm by timfarrar
Wall Street analysts always seem to have a difficult time understanding the MSS industry. Who can forget the forecasts from the late 1990s that the MSS industry would generate tens of billions of dollars in annual revenues within a few years?
Now we see equally wild guesses about the TerreStar bankruptcy and what might happen to those assets. Jonathan Chaplin of Credit Suisse suggested that there could be a grand bargain between LightSquared, TerreStar and DBSD to pool their spectrum for wireless broadband. Unfortunately this prospect appears to have been comprehensively shot down by Harbinger’s apparent attempt to disrupt the TerreStar Restructuring Support Agreement by buying TerreStar’s Exchangeable Notes.
Next up was Jason Bazinet from Citigroup, with speculation that Echostar was intending to build a satellite-based mobile video network using TerreStar and/or DBSD’s assets. However, this bizarre analysis completely misunderstands the limitations of satellite services: you can build a satellite-based broadcast network using a limited number of repeaters (just like Sirius XM has done), but then its only useful in cars, not for serving the tablet market that Bazinet assumes would be the target market for the service (unless you like standing around outside in a field to watch the video programming). And of course the in-car market for subscription-based video is a small fraction of the market for satellite radio (while Qualcomm’s MediaFLO business has been little short of a disaster), because solo commuters can’t exactly spend their time watching TV whilst driving down the freeway.
So we’re left with the question – can anyone come up with a better analysis of what’s going to happen to these assets, or will we just have to wait for more to be revealed at the end of this week?
Permalink
10.29.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 1:16 pm by timfarrar
In the UK, November 5th is celebrated as Guy Fawkes night, with bonfires and fireworks to commemorate a foiled attempt to blow up the Houses of Parliament back in 1605: “Remember, remember the fifth of November. Gunpowder, Treason and Plot.” (Yes I know that burning an effigy of someone executed 400 years ago sounds pretty bizarre to Americans)
Now it looks like next Friday could also mark a significant date for the future of the MSS industry, as that is the deadline for TerreStar Networks to submit its Disclosure Statement and Plan of Reorganization for emergence from bankruptcy. That Plan could reveal details of how TerreStar Networks intends to move forward with both its MSS services and attempts to monetize its ATC spectrum. We also may find out more about what is likely to happen with the TerreStar-2 satellite, which could end up being used to support a European S-band project. This comes at a time when we are waiting to see what happens to DBSD, after its attempted emergence from bankruptcy was stayed by the Second Circuit in early October. Even more importantly, there appears to be an ongoing battle between Harbinger/LightSquared and Clearwire to secure a partnership with T-Mobile, as the current Clearwire auction moves towards a conclusion (most likely before Thanksgiving). Securing a partnership with T-Mobile could be a make-or-break situation for Harbinger and LightSquared, as T-Mobile is the only major US wireless carrier still to decide how it will move forward with 4G. There has even been speculation from Credit Suisse about a grand bargain that would bring together all three of these ATC spectrum holders. However, with Harbinger now buying the unsecured Exchangeable Notes at TerreStar Networks at 43.5 cents on the dollar, which were only supposed to receive up to 3% of the restructured equity (i.e. less than 20 cents on the dollar), a challenge to the TerreStar Restructuring Agreement might appear to be a more likely outcome.
As a result, the next week is likely to be filled with plotting, but let’s just hope that by next Friday any gunpowder will be signaling celebration rather than destruction in the MSS industry. Today we’re releasing our new profile of LightSquared, which contains a detailed analysis of their LTE business plan and a discussion of spectrum valuation and regulatory issues, all of which will be very relevant to those seeking to understand the implications of these events. Our MSS operator profiles are sold individually and are priced at $995, including a free one hour discussion of our analysis. On Monday we’ll also be releasing a new report with details of MSS industry developments, including Inmarsat’s Ka-band system, regulatory and financial ATC-related developments and updates on market growth, which is available exclusively to subscribers to our MSS information service. Contact us if you need any more information about our research.
Permalink
10.21.10
Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 12:56 pm by timfarrar
One of the most important documents filed so far in the TerreStar bankruptcy case is the Restructuring Support Agreement, which TerreStar (and Echostar as the majority holder of the first lien debt) have committed to support as a basis for the plan for emergence from Chapter 11. This agreement will convert the Senior Secured PIK Notes ($944M of principal and accrued interest) into 97% of the new equity of TerreStar Networks (TSN), with the remaining 3% shared between the Exchangeable Notes ($179M of principal and accrued interest) and other unsecured claims. No distribution will be made to the original holders of interests in TSN (the 89% held by TerreStar Corporation and the 11% held by LightSquared). In addition there will be an offering of $125M of Preferred Stock to repay the DIP, with rights to subscribe to 97% of this Stock offered to the Secured Notes holders and the remaining 3% offered to the holders of Exchangeable Notes/unsecured claims. Echostar has agreed to backstop $100M of this $125M offering. The “net distributable value” under the Plan is set at $1.050 billion, and the Preferred Stock will be issued at a discount of 35%. Under the Plan the only outstanding debt after emergence from bankruptcy would be the Purchase Money Credit Facility (PMCF), which currently has $86M outstanding.
The RSA also includes a declaration from Steven Zelin of Blackstone, which sets out details of the negotiation process leading up to the bankruptcy filing. Many of the developments are broadly in line with what we had surmised, notably that TerreStar had tried to float a much larger DIP of $250M, initially using the 1.4GHz spectrum and the ground spare satellite as security (after repaying the PMCF), and later by priming the first lien debt. However, neither option proved feasible, the first apparently because the 1.4GHz spectrum plus the ground spare satellite did not provide sufficient security, and the second because it was anticipated that a priming fight would be difficult to win. As a result, TerreStar was forced to accept Echostar’s proposal for a $75M DIP and plan of emergence set out in the RSA.
The unanswered question is to what degree Harbinger is content with the outcome – it certainly appears to have been on the opposite side from Echostar in the early part of the negotiation process (apparently agreeing to participate in the first proposed DIP) but then it agreed with Echostar to provide a $10M advance under the PMCF, which explains how TerreStar managed to stay out of bankruptcy until now. However it seems a huge stretch to imagine that this means there is some agreement between Harbinger and Echostar to join forces and collaborate in LightSquared, as Credit Suisse have suggested. In particular, there are plenty of other reasons for both companies to have wanted to delay the bankruptcy filing: in Echostar’s case because they needed to negotiate over their own proposal, and in Harbinger’s case because they were trying to finalize additional funding for LightSquared.
Permalink
10.19.10
Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 2:41 pm by timfarrar
This afternoon, TerreStar Networks and various affiliates filed for bankruptcy, and entered into an agreement with EchoStar Corporation, its largest secured creditor, to provide the Company with a $75 million debtor-in-possession financing facility (as we surmised on Saturday). In addition, Echostar will support a restructuring premised on a debt for equity conversion by the Debtors’ secured noteholders, and backstop a $100 million rights offering that will provide the funding for TerreStar Networks’ exit from Chapter 11.
As shown in the diagram below from the TerreStar Networks Chapter 11 petition, the publicly quoted parent, TerreStar Corporation, did not file for bankruptcy, and presumably could continue to operate using the $2M per month that Harbinger is paying for its lease of the 1.4GHz spectrum. However, in the short term, this $2M per month will not be cash revenue, because the $30M advance received back in January covers payments for 15 months of the lease (i.e. until next May) and has already been spent. Thus it is unclear how TerreStar Corporation will find its near term operating funds.
UPDATE: TerreStar Corporation has now filed an 8-K confirming the tolling agreement to suspend its litigation with Highland Capital and that Highland, Solus and Harbinger have agreed to loan the company $1.25M for a period of 75 days. It appears that this may provide a window of opportunity to either negotiate a sale of the 1.4GHz spectrum or decide if TerreStar Corporation should file for bankruptcy. TerreStar Corporation has also agreed that its shares will be delisted from NASDAQ.
TerreStar Corporation will retain control of its 1.4GHz spectrum assets, but will see its shareholding in TerreStar Networks wiped out in the bankruptcy (note that both the TerreStar-1 and TerreStar-2 satellites and their 2GHz MSS-ATC spectrum allocation are included in the bankruptcy proceeding). As a result, the residual value of TerreStar Corporation will basically be equal to the value of the 1.4GHz spectrum assets. However, it is hardly plausible that this spectrum could be worth more than the $408M (+ accrued interest) outstanding in TerreStar Corporation’s preferred stock.
Though a TerreStar bankruptcy has been rumored for several months, it has been a long time in coming. This appears to have been caused by several changes in plan, as it appears the original intention was to try and avoid losing control of TerreStar Networks and its spectrum, and raise money against the assets at TerreStar Corporation, a task which apparently proved fruitless. There is no mention of any role for Harbinger in the press release announcing the Chapter 11 filing, so it will be interesting to see what happens next with the 2GHz MSS spectrum. However, it certainly appears possible that there could be yet another source of spectrum on the market competing for buyers with Clearwire and LightSquared.
Permalink
10.16.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 7:58 pm by timfarrar
Reports have now emerged that a TerreStar bankruptcy filing may take place as soon as Sunday, October 17, with “one creditor” potentially providing about $75M in DIP financing. It would not be a surprise to see a bankruptcy filing this weekend, as the interest payment on TerreStar’s preferred stock, which was due on Friday, had always provided a deadline for resolution of the funding situation.
Now the question turns to who will provide this DIP. The fact that it is described as coming from “one creditor” indicates that this is almost certainly Echostar, given that Harbinger could potentially face regulatory concerns if it was to acquire control of TerreStar in addition to LightSquared. As we noted in previous posts, it appears there may have been efforts earlier in the summer to syndicate a much larger DIP to other parties and cram-up the first lien debt. However, assuming these efforts have failed, Echostar presumably will be able to protect its first lien position by providing the DIP itself.
It will be very interesting to see whether Harbinger will retain a position of influence in TerreStar or if it will end up largely sidelined in a TerreStar bankruptcy. In the latter case, it is quite plausible that in addition to Clearwire’s ongoing spectrum auction, Harbinger could find itself faced with competition for strategic partners from yet another source of spectrum – the opportunity to access the 2GHz ATC spectrum. Of course, some wireless operators might prefer the spectrum to be returned and re-auctioned without ATC constraints in an incentive auction, but even the initial rulemaking won’t be complete until sometime in 2011, and an auction could take another year or more to organize. Thus until the FCC completes its MSS rulemaking, the owners of the 2GHz ATC spectrum (at least other than Harbinger) would certainly have nothing to lose in seeking out a potential buyer.
UPDATE: Harbinger has now stated that it is “not really involved anymore” with TerreStar, essentially confirming that it will not be providing the DIP financing. This comment also tends to suggest that Harbinger might no longer be in a position to prevent the owners of the 2GHz ATC spectrum seeking a spectrum buyer in competition with LightSquared.
Permalink
« Previous Page — « Previous entries « Previous Page · Next Page » Next entries » — Next Page »
