10.08.10
Posted in Financials, Globalstar, LightSquared, Operators, Regulatory, Spectrum at 11:30 am by timfarrar
Although we remain intrigued by the timing of yesterday’s announcement of LightSquared’s chipset and device partners, what is now clear is that next year should finally result in the actual commercial deployment of an ATC network, offering both satellite and terrestrial mobile services for the first time. (Although Open Range had deployed a couple of thousand terminals under its agreement with Globalstar prior to the FCC suspending Globalstar’s ATC license, these did not include two-way functionality, and to date no handheld terminals had been produced).
LightSquared now claims to have raised over $2B, which the company expects will see it through to “operational launch and beyond” in the second half of next year. Although it is not clear where the $2B is coming from, and whether (as yet unannounced) vendor financing will form part of that $2B or could be incremental to it, it is certainly the case that with Harbinger apparently injecting funds from a $400M UBS loan in July, converting its reported $430M of debt into equity (as part of this week’s $850M debt refinancing) and presumably investing the proceeds from the sale of half of its Inmarsat stake (for $650M) in LightSquared, the company should have enough money both to pay Inmarsat for the ongoing rebanding of the L-band, and to fund the buildout of its first markets in 2011, an outcome that looked like a distant dream less than a year ago.
Given that there are no significant remaining technical barriers to overcome in deploying their satellite network, and LightSquared has commitments to produce both chipsets and ATC devices from leading manufacturers, it will be interesting to see next year both how the LightSquared network is positioned and what the public reaction is to the service. In particular, will LightSquared’s retail partners attempt to use satellite as a key differentiator, or will they rely just on the LTE offering to compete with Verizon, Clearwire, MetroPCS and others?
In the nearer term, we will also look forward to finding out exactly who these retail partners will be, and whether any of them will make a financial investment in LightSquared itself. In that regard, it appears that T-Mobile is certainly keeping its options open with regard to LightSquared, having filed at the FCC in support of relaxing the ATC gating criteria, which currently require all devices to offer integrated satellite and terrestrial services. Leap Wireless also appears to be looking closely at the ATC opportunity, having initially proposed this relaxation of the gating criteria. Whether T-Mobile’s actions are part of its negotiating strategy with Clearwire, or whether T-Mobile and Leap really are taking a potential investment in LightSquared seriously, remains to be seen.
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10.07.10
Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 9:17 am by timfarrar
Although Harbinger/LightSquared hasn’t yet got a terrestrial network to rival those of other cellular operators, it certainly has proved more than a match for them in its PR department, garnering significant positive coverage in recent months for its buildout plans, fundraising and potential partners, despite the doubts of many commentators.
However, its also the case that LightSquared has deployed its PR efforts very strategically, most notably when it announced the deal with Nokia Siemens Networks in July, straight after a skeptical article appeared in the WSJ. This week we also saw the announcement of further funding for LightSquared immediately preceding the decision to sell half of Harbinger’s stake in Inmarsat.
As a result, we’re left wondering if today’s announcement of a chipset partnership and initial device manufacturers, which also “paints a very positive picture for where LightSquared is going”, signals that there will be some bad news coming out soon. What might that be? Well as we’ve pointed out before, decision day is rapidly approaching for TerreStar, which could well involve a bankruptcy filing or other restructuring, and would certainly be another worrying sign for the MSS-ATC sector.
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10.03.10
Posted in Handheld, Operators, Services, TerreStar at 7:41 pm by timfarrar
Its been known for at least a year that TerreStar’s Genus phone would need an external antenna to provide good performance in Alaska and most of Canada. TerreStar’s latest coverage map indicates this, and also recommends the use of the external antenna in Hawaii and Puerto Rico/US Virgin Islands as well.
We’ve now obtained a picture of the cradle and external antenna, which we understand will be announced soon, presumably once approval is received for this equipment from the FCC.
UPDATE: SatPhoneStore are now selling what is referred to as the Genus External Antenna and Sled for $265. Interestingly, the Genus phone itself is priced at $1150 (down from a “regular price” of $1299), suggesting that the wholesale price of the phone to distributors other than AT&T may be approaching $1000.
It looks like the Genus phone will be a rather harder sell if users need to buy a separate and relatively bulky external antenna to improve performance, so let’s hope that what happens in Alaska stays in Alaska.
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09.29.10
Posted in Financials, Handheld, Iridium, Operators, Services, TerreStar at 10:42 pm by timfarrar
When I read this review of the TerreStar Genus phone, not only did it confirm my own views about the limited prospects for the phone and the wider lack of interest in dual mode satellite phones, but it brought back quite a few memories from the late 1990s.
Most notably, likening a satellite phone to a “brick” is never a good sign (“It’s huge! It will scare people…If we had a campaign that featured our product, we’d lose“).
Also the suggestion that AT&T hasn’t identified the market correctly if it thinks people will use this as their “everyday mobile device”, along with criticism of the “hefty series of price tags” (“What it looks like now is a multibillion-dollar science project. There are fundamental problems: The handset is big, the service is expensive, and the customers haven’t really been identified“)
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Posted in ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 4:35 pm by timfarrar
The FCC has just released its ruling on cost sharing rules for the 2GHz BAS relocation, which requires that the 2GHz MSS players will have to pay their pro-rata share of the costs incurred by Sprint Nextel in clearing the band. Back in 2009, Sprint Nextel estimated these expenses would be about $100M for each MSS operator.
The FCC ruled that MSS operators would have 30 days to pay these costs after Sprint Nextel presented them with a bill (which could happen very soon after the ruling becomes effective, sometime in November). If the costs were not paid, then the Commission could take enforcement action, although it would not automatically suspend an MSS operator’s license as Sprint requested. In addition, joint and several liability for the costs would continue in the event that a license was transferred to another party (although the Commission did not address how this liability would be impacted by a bankruptcy filing). With respect to ICO Global’s potential joint liability with DBSD for its relocation costs, the Commission outlined certain principles which would apply to this question, but indicated that Sprint Nextel would have to pursue litigation against ICO Global to resolve this claim.
Though this ruling presents certain issues for DBSD, related to its emergence from bankruptcy, it also has a definite impact for TerreStar, as it is now likely that Sprint Nextel will seek to claim $100M+ from TerreStar by the end of the year. Of course, TerreStar Networks might wish to file for bankruptcy to try and avoid this liability just like DBSD (perhaps after the claim is presented rather than before?) and it remains unclear whether TerreStar Corporation would also be subject to joint and several liability. However, if TerreStar is to monetize its 2GHz spectrum in the future (e.g. through an incentive auction) for which it will very likely need the FCC’s cooperation, it seems rather unlikely that the FCC would also allow it to escape this reimbursement obligation, reinforcing that the FCC has numerous levers to ensure that the 2GHz spectrum question is resolved in the way it wants.
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09.28.10
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 10:36 am by timfarrar
Back in August, it looked very much like TerreStar was poised to file for bankruptcy, using a large DIP facility of $200M+ to fund the company for the next several years while it attempted to build a satellite roaming business. Harbinger indicated at the time that it believed a bankrupt TerreStar’s spectrum was worth $1.5B to $2B. This suggests that (as we speculated) the plan may well have been to cram-up the ~$1B of first lien debt that is outstanding at TerreStar Networks. However, it appears that Blackstone was unsuccessful in finding takers for that financing, and so the question arises as to what is now their Plan B for TerreStar.
In TerreStar’s 2010Q2 10-Q, filed in early August, the company stated that “there is substantial doubt that the available cash balance, investments and available borrowing capacity as of June 30, 2010 will be sufficient to satisfy the projected funding needs for third quarter of 2010″ and yet we are now at the end of the third quarter and there has been no bankruptcy filing. AT&T also announced the commercial release of the Genus phone last week. Some have therefore suggested that this means TerreStar is likely to avoid bankruptcy, because AT&T would not have gone to market with the phone immediately prior to a bankruptcy filing.
Of course, if TerreStar had actually secured further investments, these would have to have been disclosed in an 8-K filing, but it is certainly clear the company has managed to make its cash resources last longer than it previously expected. One possibility is that AT&T paid upfront for the Genus phones it is selling, which would have provided some cash for TerreStar without the need for a public filing. It would also explain why AT&T is keen to move ahead with the commercial launch if it now owns several tens of thousands of Genus phones.
UPDATE: According to documents filed in the TerreStar bankruptcy proceeding, Echostar and Harbinger allowed TerreStar to draw a further $10M from the Purchase Money Credit Facility, and agreed to waive any claims of potential default. However, given that the bankruptcy documents show only a few hundred thousand dollars of expected receipts for TerreStar from phone sales by the end of the year, it still appears possible that either AT&T may have paid upfront for the phones it expects to sell, or (perhaps more likely) Elektrobit has been left holding the bag, given the substantial losses it expects to book on its TerreStar receivables.
However, TerreStar obviously also needs to raise further funds to cover its ongoing operating expenses. It has a window of time until August 2011 when no cash interest is due on TerreStar Networks’ first lien debt, and so it appears plausible that raising say $50M+ at TerreStar Corporation (presumably against the security of the 1.4GHz spectrum) would be (barely) sufficient to see the company through to next August, when the outcome of the FCC’s MSS NPRM/NOI should be clearer.
This might well still require a bankruptcy filing by TerreStar Corporation (depending on what happens with the outstanding $408M of Preferred Stock, since the company has certain obligations to redeem the Preferred Stock if it has more than $10M in available funds), but we assume that Blackstone might conceivably look to keep the TerreStar Networks subsidiary out of bankruptcy (assuming this is permitted by the cross-default provisions on the first lien debt) and thereby enable TerreStar Corporation to retain its shareholding in TerreStar Networks.
Then, if it turned out that the FCC’s NPRM allowed the 2GHz satellite spectrum to be monetized for more than the value of the outstanding first lien debt (something we regard as unlikely), the proceeds could potentially flow to the owners of TerreStar Corporation (although it is implausible that an auction could occur by August 2011 so there would certainly still be significant arguments about the value of this spectrum). In addition, this outcome would ensure that TerreStar’s 2GHz spectrum is not on the market as an alternative to LightSquared, while Harbinger seeks to secure partners for its LTE network buildout over the next 9 months.
UPDATE: From the TerreStar bankruptcy filings, it does not appear that the approach we speculated about would have been feasible, presumably at least in part because it was not possible to raise money against the security of the 1.4GHz spectrum, and in the last few weeks the alternative plan to accepting a deal with Echostar was to try and prime the first lien debt which Echostar controlled at TerreStar Networks. However, in the end TerreStar has had to take a $75M DIP from Echostar and agree to the restructuring plan which Echostar proposed.
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09.23.10
Posted in Aeronautical, Inmarsat, Operators at 11:59 am by timfarrar
Its now been announced that JetBlue has signed an MOU with Viasat to install Ka-band connectivity on its fleet, starting in 2012. One of the primary reasons cited by JetBlue was that the satellite capacity was much cheaper than at Ku-band.
We analyzed the cost of providing service for Aircell and Row44 in one of our recent research reports, and concluded that (as JetBlue also asserted), Ku-band satellite capacity can rapidly become the dominant cost driver for aeronautical broadband even at moderate usage levels and take rates. For example, we estimated that at a 25% take-rate, the cost of Ku-band satellite capacity would be between $30K and $80K per plane per year, depending on the amount of bandwidth allocated to each customer. This compares to an amortized satellite equipment cost of perhaps $40K per plane per year. Viasat’s Ka-band satellite could reduce the capacity cost by a factor of up to about 5 times, bringing the cost of capacity down to say $6K to $16K per plane per year.
Thus the strategic question for JetBlue is whether it will use this capacity cost differential to make the service free to end users (or free for most applications other than say streaming video). As noted in past news articles, charging for in-flight broadband has a huge impact on take rates. However, Row 44 (with expensive Ku-band capacity) and Aircell (with a limited amount of terrestrial bandwidth) can’t afford to offer free usage, unless they constrain the service significantly (e.g. no streaming video and limited bandwidth). JetBlue has already offered free (albeit very limited) service on its Beta Blue plane, whereas Southwest (which will set pricing on its Row44-equipped planes) has indicated that it plans to charge for the service.
If JetBlue did offer free service, then this would certainly shake up the in-flight broadband business. Would airlines step-in to pay Aircell directly for their service instead of relying on passenger revenues? Will there be a return of the sponsorship model used on airlines like Virgin America for a period last year? More to the point, will the mere prospect of such disruption cause airlines thinking about installing Ku-band to consider waiting for Inmarsat’s new Ka-band Global Xpress service in 2014?
UPDATE: Now Southwest has agreed to buy AirTran, which already has fleetwide in-flight connectivity through Aircell, will Southwest have yet another reason to reconsider its Ku-band plans with Row44?
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09.20.10
Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 8:46 am by timfarrar
One of the most interesting questions about Inmarsat’s new ISatPhone Pro is how well it will work at low elevation angles, including for example whether the phone antenna needs to be pointed towards the satellite. This is going to be particularly relevant in Alaska, much of which lies very close to the nominal edge of coverage, and well outside the 20 degree elevation angle contour (where Inmarsat suggests that “more user cooperation is required”), as shown below.
However, I’ve been told by Inmarsat that the phone is performing better than expected, even at relatively low elevation angles, so it will be interesting to see what this means in practice. Given that the beams used for registering the phone on the Inmarsat satellite are lower power than the beams used for a call, it appears probable that either the phone will register successfully and then calls can be made OK, or the phone won’t register and then no calls can be made at all.
Its surprising that we haven’t yet seen any published real world tests of the Inmarsat phone in comparison to Iridium, similar to the Frost & Sullivan reports which compared Iridium and Globalstar in 2008 and 2002. However, I’m sure similar analyses will be undertaken by both Iridium and Inmarsat at least for their own internal purposes, and possibly even for external publication if they believe the results are favorable. If you’ve tried out the phone in “fringe” coverage areas then feel free to let us know about your experience in the comments section below.
UPDATE: So now Frost & Sullivan has released its comparison of the Iridium and Inmarsat phones, which was commissioned by Iridium. It is notable that in Anchorage, Alaska, Frost & Sullivan “was unable to make or receive a call despite dozens of attempts and was only able to briefly find a satellite”. This points to difficulties with registration, as we suspected. However, Inmarsat sources tell us that it is perfectly possible to register on the satellite in Alaska, and make calls there. We haven’t yet got an independent view, but it would seem likely that the actual answer may lie somewhere between these two opposing views. We would speculate that you will probably have to have a pretty good idea where the Inmarsat satellite is so you can point the phone antenna at it during registration (maybe using a compass would be helpful?).
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09.16.10
Posted in Handheld, Operators, Regulatory, Services, Spectrum, TerreStar at 10:02 am by timfarrar
We’re told that TerreStar is planning to announce (tomorrow?) that the Genus phone will be released by AT&T next week. However, surprisingly enough, AT&T’s filing yesterday in response to the FCC’s NPRM/NOI on MSS spectrum, didn’t mention the Genus phone once. Not only that, but AT&T actually suggested that “rationalizing the MSS bands for terrestrial wireless use is a
good first step to implementing a comprehensive broadband spectrum strategy”, and supported the concept suggested in the NOI, that “there may be opportunities to ‘meet future [MSS] needs with less allocated spectrum in some or all of the bands.’”
Therefore the obvious question is whether AT&T cares about the success of the Genus phone, or instead would actually benefit from it failing, because it believes that the “2 GHz MSS band is a good target for the creation of new terrestrial mobile services”. Of course AT&T is a large company, and what is in the interests of AT&T at a corporate level may differ from the priorities of the staff working on the Genus launch. However, given the challenges that the Genus phone already faces, it is noteworthy that the project does not appear to enjoy much recognition or support when AT&T is setting out its strategic interests in the wireless business.
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09.14.10
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 9:54 pm by timfarrar
The FCC today released its ruling denying Globalstar’s request for a postponement of the deadlines in its ATC license, which required launch of its second generation satellites by July 1, 2010 and provision of two-way service to its ATC terminals by July 1, 2011. The FCC has granted Open Range a temporary waiver, which basically gives it 60 days to make other spectrum arrangements or its network will be shut down.
This ruling comes as quite a shock to most observers, because it was assumed that the FCC was contemplating providing more flexibility to MSS-ATC licensees after release of its recent NPRM/NOI. However, as we argued at the time, the contents of the NPRM/NOI were actually something of a disappointment to those expecting such liberalization, because the emphasis was on reallocation of the 2GHz spectrum for terrestrial use, with incentive auctions or other mechanisms used to ensure that the government receives “appropriate compensation for the step up in value” that would occur if the existing ATC restrictions were removed in that band. In that context, as we suggested, it would be hard for the FCC to provide further flexibility to ATC licensees in other bands (i.e. LightSquared and Globalstar) with no offsetting “compensation”. Nevertheless, we had still expected that Globalstar might be granted its requested waivers, because LightSquared had achieved the ATC license modifications it desired back in March.
However, now that the FCC has taken a hard line with Globalstar, it raises the question not only of what Open Range will do next for spectrum, but whether any future inability to meet license conditions will place other ATC licenses (and the associated spectrum assets) at risk. Notably, observers will presumably begin to wonder what will result from the proceeding relating to the reimbursement claimed by Sprint from DBSD and TerreStar for clearing the 2GHz spectrum band (estimated by Sprint at $100M+ per operator), compliance with the outcome of which was a condition of TerreStar’s ATC license grant back in January. Though DBSD has sought to avoid these costs through its bankruptcy filing, it is less certain that TerreStar would be able to do likewise. TerreStar has also recently requested certain waivers of the ATC base station and terminal requirements from the FCC. In addition, it is quite possible that there may be requests by Harbinger to extend the very aggressive terrestrial deployment deadlines associated with the LightSquared network at some point in the future, and in the near term, LightSquared recently delayed the launch of its first next generation satellite to December 2010, which will also require a waiver from the FCC, and questions are sure to be raised about whether this delay was solely attributable to technical problems.
With comments due in response to the July 2010 NPRM/NOI tomorrow, it is likely that a lot of last minute redrafting of submissions is going on tonight, so it will be interesting to see whether any of these issues are raised either by the satellite companies themselves, or by terrestrial wireless interests encouraging the FCC to continue to take a hard line on ATC.
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