05.14.10
Posted in Financials, Handheld, Operators, Services, Spectrum, TerreStar at 10:26 am by timfarrar
Back in March, I was lucky enough to try TerreStar’s Genus phone at the Satellite 2010 conference. At that time it was clear that the phone needed further work to get it ready for commercial service, and recent filings from TerreStar indicate that the company is now working with HNS on an “ATT-QoS Workaround” to address some “APN Issues” (APN or Access Point Node relates to data services, which I did not try to use back in March).
UPDATE: I’m told by a technical expert in this area that the GMR1-3G protocol used by TerreStar treats all information as packet data, including voice (which has the highest QoS). Given that AT&T’s terrestrial network carries voice over GSM and does not normally provide an equivalent voice over packet data service at this point in time, it appears quite plausible that the workaround relates to an attempt to optimize voice performance rather than being an issue for TerreStar’s data services.
However, my concerns about the viability of the Genus phone relate much more to whether the orientation-sensitivity of the phone will actually be acceptable in real world usage conditions. To use the phone you need to know where the satellite is located (roughly southwest when you are on the East Coast) and have clear visibility in that direction. Though that was simple at the Satellite conference, where this direction was out over the Potomac river, it certainly won’t always be the case in rural areas, unless its a desert or a prairie. I still remember only too well the joke I was told by a Globalstar engineer ten years ago – that their system was designed for a “man out standing/outstanding in his field”. More to the point you also need to stand still and not turn around – very different to the situation with Iridium and Globalstar handsets, where the extending antenna goes above your head and allows you to “walk and talk”.
If orientation-sensitivity does prove to be a big problem for potential users, as I think it will, then TerreStar is faced with an unpalatable choice: design a phone with an extending antenna, which will work fine, but would have no mass market appeal, or sell a phone like the Genus, which could conceivably have wider appeal, but won’t provide acceptable performance in satellite mode. Fundamentally, I therefore don’t see any reason to change the opinion I expressed last year during the DBSD bankruptcy, that “the part of TerreStar’s business plan directed to a mass market service is very unlikely to succeed”.
However, there has been one important change in the environment for TerreStar over the last six months, because the FCC has now held out the possibility that 2GHz MSS spectrum holders will be able to participate in an incentive auction, which would potentially allow them to return their spectrum to the FCC for re-auction as terrestrial spectrum without any ATC restrictions. Given the difficulty in realizing value from a satellite roaming business plan, then unless Harbinger negotiates a lease agreement for TerreStar’s satellite spectrum, as part of its planned L-band ATC deployment, it seems likely that this would be the best exit TerreStar could hope for. However, given that the FCC would only give TerreStar a proportion of the proceeds from the auction, and it would probably take a couple of years before that auction even happened (during which period TerreStar will have to raise more money to keep its satellite in operation), it is hard to imagine that the proceeds could exceed the secured debt load that TerreStar has accrued to date. Even if TerreStar did enter some sort of lease agreement with Harbinger (some details of the draft term sheet for the Spectrum Pooling Agreement, which appears to contemplate a “potential purchase of the S-band Spectrum” as one option, but not a takeover of TerreStar itself, have also been publicly filed), then it seems implausible that this payment would exceed the value of SkyTerra’s lease agreement with Inmarsat, which calls for payments of $115M per year, and it could very well be much less. Unfortunately even $115M per year would be insufficient to pay the interest on TerreStar’s secured debt, when it becomes cash pay next year. Remember also that if TerreStar stays out of bankruptcy, it will at some point have to pay Sprint’s spectrum clearing expenses, which Sprint has claimed exceed $100M for each of TerreStar and DBSD.
At this point in time, the future for TerreStar therefore looks pretty uncertain. More importantly for the rest of the MSS market, it is far from clear whether the Genus phone will provide meaningful competition to other handheld MSS providers, and even whether AT&T will actually go ahead with any large scale commercial launch of the handset. I’m sure everyone will be watching with interest to see what news emerges over the next few weeks.
Permalink
04.01.10
Posted in LightSquared, Operators, Regulatory, Spectrum at 1:32 am by timfarrar
Is Harbinger’s motto “Outwit, Outplay, Outlast“?
It surely wasn’t a surprise to Harbinger’s lawyers (who employ Tom Tycz, former Chief of the Satellite Division in the FCC’s International Bureau) that AT&T has challenged the conditions forbidding SkyTerra from leasing spectrum to AT&T and Verizon and restricting the amount of ATC traffic from those two operators.
Meanwhile, Harbinger’s announced intention to build a competing network has clearly forced AT&T to take ATC a lot more seriously than had apparently been the case in recent years. Presumably if the conditions were invalidated, then it might become harder for the FCC to resist any subsequent transaction with AT&T or Verizon. Thus Harbinger might conceivably foresee a profitable way out without having to take the risk of building an LTE network and actually having to attract customers.
On the other hand, if this project gets tied up in a legal and political battle for the next several years, then we might instead see Harbinger losing its investment and being voted off the island.
Permalink
03.30.10
Posted in Aeronautical, Inmarsat, Operators, Services at 9:23 am by timfarrar
Its turning out to be a good week for our predictions. After the announcement that Harbinger is going to build a new LTE ATC network, comes the news that Ryanair is discontinuing its in-flight connectivity service, after OnAir exercised its right to terminate the contract. Though the termination apparently “puzzled analysts”, we predicted back in 2006 and reiterated in 2008 that there wouldn’t be enough revenue for both Ryanair and OnAir to make money from the service, and so the fleetwide deployment would never be completed.
Thought Ryanair is putting a brave face on it, presumably in the hope of finding another sucker to take on the contract under similar terms and conditions, it was well known that the original contract was extremely unfavorable to OnAir (so much so that a major rival told us they wouldn’t touch it with a bargepole).
We believe that Ryanair got a cut of revenues off the top, with OnAir left to pay for the terminals out of what was left after paying expenses for airtime, termination, etc. Unsurprisingly it was therefore virtually all upside for Ryanair (bar the cost of flying the equipment around), but financially disastrous for OnAir when revenues came in at a small fraction of the EUR528K per plane per year that was originally predicted by the two companies.
OnAir Analyst Briefing Sept 27, 2007
It now seems that an approximation of reality is slowly returning to the in-flight communications market. Hopefully the next shoe to drop will be when Southwest doesn’t follow through on its fleetwide deployment plans with Row44, for exactly the same reason – there simply isn’t enough passenger revenue to pay for expensive VSAT or SwiftBroadband terminals, if both the airline and provider want to make a profit.
Permalink
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 8:48 am by timfarrar
The initial response of AT&T and Verizon to the FCC’s approval of Harbinger’s plans has been extremely hostile, with AT&T describing the action as “manifestly unwise and potentially unlawful”. Presumably their reaction is at least partly due to the fact that it appears at least one and possibly both of them were caught napping by the FCC’s action.
Interestingly, Communications Daily is also reporting that the FCC’s Republican commissioners sought to have the limitations on leasing to AT&T and Verizon stripped from the Order, but were unsuccessful. We also understand that at least two MSS operators have come away from recent meetings with the Commission convinced that the forthcoming proposals to encourage the use of MSS spectrum for mobile broadband (promised in the National Broadband Plan) will suggest removing the requirement for all ATC terminals to have dual-mode satellite-terrestrial capability and instead simply require that the satellite services are offered to some subset of customers.
This sets the scene for a big political battle if and when Harbinger moves forward. You can imagine the potential for arguments between Democrats and Republicans about favoring well-connected hedge funds. Of course what might trump it all is if it turns out that Huawei is building (and possibly vendor financing) the network. In that case the specter of national security implications is likely to make Mr Falcone’s previous appearance before Congress seem like a cakewalk.
Permalink
03.27.10
Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 4:01 pm by timfarrar
As we’ve been blogging over the last month, Harbinger is planning to deploy a multi-billion dollar US ATC network which is breathtaking in its ambition. On Friday, Harbinger filed a letter with the FCC summarizing these plans, which it had told the FCC confidentially a month earlier, before the FCC approved Harbinger taking control of SkyTerra and approved its ATC license modifications, both of which were also announced on Friday.
Specifically, Harbinger plans to develop a nationwide terrestrial broadband mobile 4G LTE network, which, without regard to satellite coverage, will provide wireless data on a nationwide basis, through over 36,000 base stations. The network will be operated on an open access basis and will initially use 23MHz of spectrum, including 8 MHz of 1.4 GHz terrestrial spectrum, 5 MHz of 1.6 GHz terrestrial spectrum (1670-75MHz) and 10 MHz of (SkyTerra’s) MSS/ATC L-band spectrum. Through a cooperation agreement with Inmarsat and associated waivers of the Commission’s ATC rules, by 2013 Harbinger will have access to an additional 30 MHz of ATC spectrum (in the L-band).
In addition, Harbinger also is discussing with other Commission licensees (presumably including TerreStar but clearly also including other terrestrial bands such as WCS) the possibility of hosting or pooling their spectrum in order to enable them on the terrestrial wireless network, i.e., the spectrum would be incorporated into the infrastructure of the terrestrial wireless network. The hosted or pooled spectrum then could be integrated with Harbinger’s spectrum to enhance the broadband capacity of the terrestrial network.
Service will begin in two trial markets, Denver and Phoenix, with a commercial launch before the third quarter of 2011 providing service to up to 9 million POPs. All major markets will be installed by the end of the second quarter of 2013. Harbinger has committed to the FCC that it will construct a terrestrial network to provide coverage to at least 100 million people in the United States by December 31, 2012; to at least 145 million people in the United States by December 31, 2013; and to at least 260 million people in the United States by December 31, 2015. By 2015, the company expects to serve more than 40 million connected consumer terrestrial devices on a wholesale basis, which is even more ambitious than Clearwire’s targets.
Just in case it wasn’t clear already, the proposed Harbinger bid for Inmarsat is not going to happen: the emphasis is on the Cooperation Agreement as the means of exploiting the L-band MSS-ATC spectrum. On the other hand, Inmarsat can’t be disappointed with $115M per year of incremental revenue with no cost and no risk.
Oh, and just to throw one more random guess out there, the first thing I thought of when reading T-Mobile’s recent statements that it has enough spectrum for the next couple of years, but that it was looking at various joint ventures to boost its holdings, and correlating it with Harbinger’s commitments not to sell more than 25% of its capacity to the two largest mobile operators, was that I bet I know who is number one on Harbinger’s list of potential target partners to use its new wholesale network.
Permalink
03.17.10
Posted in Financials, Handheld, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:27 pm by timfarrar
This morning I had a brief chance to try TerreStar’s new Genus phone before the MSS CEO panel at Satellite 2010/MSUA-7. As pointed out in previous posts, the link is quite sensitive to phone orientation (remember not to turn around during a call). In addition, the phone software is still being optimized to address various issues such as the delay in establishing a voice channel after a call is answered, and the registration time necessary to switch from cellular into satellite mode. However, satellite SMS appears to work well (both to and from the phone) and may end up being more important to TerreStar than originally anticipated. It will therefore be interesting to see to what degree TerreStar is able to take customers away from Iridium and other MSS providers (as TerreStar’s CEO indicated was his ambition) once the phone enters commercial service in the next few months.
While some questions remain about TerreStar’s satellite service, more clarity is emerging about Harbinger’s likely ATC plans after the release of the National Broadband Plan yesterday. As we noted a few weeks ago, it appears that a consortium is being put together by Harbinger (and a team of executives recruited) to build a new entrant LTE-based mobile broadband network, using a mixture of spectrum in the L-band, 2GHz band, 1.4GHz band and 1670-75MHz band, along with substantial vendor financing. The Broadband Plan indicates that the FCC is likely to be supportive of moves to accelerate the deployment of an ambitious ATC network, though Harbinger’s network would probably not require any substantive changes to current FCC regulations. It has been suggested to us that the network would ultimately require $4B of capex and another $4B in funding for subscriber acquisition and other costs, indicating a similar scale of ambitions to Clearwire, which is targeting a subscriber base of 30M users over a 10 year period. Such a plan would certainly be a transformative move for the entire MSS industry (even if its focus is almost entirely on terrestrial services), and so all of us will be waiting with bated breath to see whether Harbinger realizes its plans, something that now seems more likely than not to become clear in the very near future.
Permalink
02.24.10
Posted in Financials, Globalstar, ICO/DBSD, Inmarsat, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 11:32 am by timfarrar
So the cat is out of the bag. As we noted last December, the FCC has been looking hard at how to make sure MSS spectrum is put to productive uses, and now in a speech by Chairman Genachowski, he has stated that the Plan will propose a Mobile Future Auction “permitting existing spectrum licensees, such as television broadcasters in spectrum-starved markets, to voluntarily relinquish spectrum in exchange for a share of auction proceeds, and allow spectrum sharing and other spectrum efficiency measures”. Specifically:
“The Plan proposes resolving longstanding debates about how to maximize the value of spectrum in bands such as the Mobile Satellite Service (MSS) or Wireless Communications Service (WCS) by giving licensees the option of new flexibility to put the spectrum toward mobile broadband use-or the option of voluntarily transferring the license to someone else, who will.”
It is going to be very interesting to see whether this “new flexibility” involves further liberalizing the regulations governing ATC, over what would undoubtedly be the heated objections of existing wireless carriers (who have always had a problem with potential “windfalls” for MSS spectrum holders). For example, would the FCC contemplate removing the requirement that all terminals must include satellite capability and offer a dual mode service (similar to the European S-band licenses which do not include any such restrictions)? Presumably any such carrot might come with a corresponding “use it or lose it” stick, although if an operator chose to stay with MSS-only services, it is hard to imagine that any third party could use the spectrum for terrestrial services at the same time.
However, MSS operators will certainly now be faced with a choice: do they continue to bet that (what conceivably might be more liberalized) ATC is the best way forward, and hope they can either partner with a leading wireless operator or attract investors to a new entrant wireless business plan, or do they agree to return their spectrum to the FCC in exchange for a share of the proceeds in the proposed Mobile Future Auction? The rest of this year will certainly be filled with many twists and turns in the MSS sector as we see which way operators will jump.
Permalink
02.18.10
Posted in Financials, Handheld, Inmarsat, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:05 pm by timfarrar
The FT’s Alphaville blog has highlighted various documents filed by SkyTerra with the SEC as part of its going private transaction with Harbinger, and suggested that Harbinger is still focused on the acquisition of Inmarsat that it originally proposed back in July 2008.
However, in our view these documents actually indicate the opposite, that although Harbinger is actively attempting to put together a consortium to fund an ATC network deployment, this is unlikely to include a bid for Inmarsat. The UBS analysis for Harbinger in July 2009, suggests three possible strategic options after the privatization of SkyTerra (Sol), namely:
(a) Acquire Inmarsat (Ignis)
(b) Pursue the Inmarsat (Ignis) Coordination Agreement
(c) Lease TerreStar (Taurus) Spectrum.
Over the last several months, it is clear that Harbinger has in fact pursued options (b) and (c) rather than option (a) (although admittedly it would not be able to launch a bid for Inmarsat prior to the SkyTerra takeover):
- SkyTerra declared the Inmarsat Coordination Agreement effective in December 2009 (prior to the two year deadline for this action); and
- TerreStar announced in January 2010 that it had entered a 90 day exclusive negotiation period to lease its satellite spectrum to Harbinger in exchange for an advance of $30M against its prior terrestrial (1.4GHz) spectrum lease to Harbinger.
While the Inmarsat coordination agreement (including its payment of $250M to Inmarsat to fit filters to existing Inmarsat terminals) is a necessity to make use of SkyTerra’s spectrum in any ATC network, in our view the potential Harbinger-TerreStar satellite spectrum lease is a direct alternative to pursuing a takeover of Inmarsat (albeit one which may not give access to European S-band spectrum, unless TerreStar is successful in its challenge to the European S-band process, or either Inmarsat or Solaris give up their licenses for this spectrum).
Similarly, while we understand that Harbinger is attempting to raise money from a consortium of investors over the next month or two, using this new funding to acquire Inmarsat would mean that it could not be used to fund a near term buildout of an ATC network. In fact, given the rise in Inmarsat’s stock price over the last year, it appears plausible that Harbinger might even decide to sell off some of its Inmarsat shares in order to provide funding for an ATC deployment, especially if Inmarsat decides to go down the route of spending its cashflows on a new I5 constellation with Ka-band capabilities.
There would be two ways in which an ATC network deployment could happen: if the buildout was funded by an existing wireless operator as a way to add capacity to its existing network, or as a (self-funded) standalone 4G new entrant to the US wireless market. We believe that Harbinger is pursuing the second of these alternatives at present, because the (less expensive and risky) first option is simply not open to it for the foreseeable future. As SkyTerra notes in its preliminary proxy statement:
“The Company had been actively pursuing a major strategic partner for a considerable period of time. In addition, during early to mid 2009 the Company had pursued and encouraged such parties to submit indications of interest to make an investment in and/or acquire the Company. No such partnering efforts were successful and no bona fide offers were received. In the judgment of Morgan Stanley, it was unclear that there was a short-or-medium term need for additional spectrum by ATC companies who were potential strategic partners. In addition, potential strategic partners had sources of spectrum other than through a partnership with SkyTerra, including via spectrum auctions by the FCC, and sales from SpectrumCo, Clearwire or from other entities in the satellite sector.”
Thus the pressing question is whether Harbinger will now be able to convince prospective partners/investors that a new entrant wireless business plan (presumably similar to that of Clearwire but based on LTE) would make sense. Though some funding might be available from (for example) an equipment vendor who would like to demonstrate its 4G technology (as has happened with Clearwire), it is less obvious who might be interested in providing distribution. Most importantly, with doubts persisting about whether Clearwire (with significant backing from wireless and cable operators) will be able to develop a sustainable 4G business, Harbinger will need to demonstrate a compelling reason why customers should choose its service over those of more established wireless providers. The only credible differentiator for such a wireless network lies in the satellite roaming capabilities that will be available (and mandated) in an ATC network deployment (and which Mr Falcone suggested to the Wall St Journal back in April 2009 would attract “vast global demand”). Thus potential partners’ attention will need to be focused on the TerreStar Genus phone (which now looks like it will come to market sometime in the second quarter of this year, after the deadline for Harbinger to complete its potential satellite spectrum lease with TerreStar), and whether they believe it can provide a compelling demonstration of competitive differentiation and market demand, based on this satellite roaming capability.
Permalink
01.25.10
Posted in Financials, Iridium, Operators, Spectrum, TerreStar at 3:11 pm by timfarrar
Last week I attended the Iridium Partner Conference held in (a rather wet) Phoenix, AZ at the Hyatt Regency Scottsdale. Ironically that was the very same hotel where the first demonstrations of the Iridium phone were made back in May 1998. 2010 is certainly shaping up to be just as significant for the MSS industry as was 1998, with the launch of the new TerreStar Genus phone just a few months away. We will then find out whether the new entrants are going to be able to mount a credible challenge to existing MSS operators, or whether they will experience an underwhelming customer response as Iridium and Globalstar did a decade ago. Our new profile of TerreStar has just been released, and discusses all these issues, including five year subscriber and revenue forecasts, along with an assessment of the value that might be realizable for ATC spectrum in the next few years.
At the conference itself, Iridium clarified that they intend to contract for the new NEXT constellation in mid-2010, and to ensure that they are fully funded at the same time. That would presumably involve a combination of bank loans guaranteed by export credit agencies and additional capital markets funding, totaling something between $1B and $1.2B – we would guess that they might need to raise of order $200M to $300M in high yield debt or convertible bonds in addition to the guaranteed bank loans. Interestingly, Iridium now regards advance funding from hosted payloads as “icing on the cake”, rather than as an essential component of its NEXT funding, allowing it more flexibility to consider projects which would provide an ongoing stream of revenues as opposed to just an upfront data purchase. Clearly the expectation is that by taking a “big bang” approach to its funding, Iridium will not only be able to persuade their distribution partners and customers that they will be around for the foreseeable future, but also that Iridium will close some of the EBITDA multiple discount on which their shares are trading compared to Inmarsat.
Permalink
01.05.10
Posted in Financials, Handheld, Operators, Regulatory, Spectrum, TerreStar at 4:39 pm by timfarrar
There’s a lot happening with TerreStar at the moment, as the company tries to complete the exchange offer to extend the maturity of its preferred shares. The deadline has now been pushed back until early February, while in a separate development, Echostar’s representatives have resigned from TerreStar’s board, effective December 31, 2009.
In the meantime, all eyes will be on the FCC, which needs to approve TerreStar’s ATC application (made back in the summer of 2007) before January 20, 2010 to prevent TerreStar defaulting on its loan agreement for the second satellite, which TerreStar’s deputy GC described in an October 2009 submission to the FCC as an event that “would likely be catastrophic to the company”. TerreStar will certainly be hoping that the FCC’s indications that it is taking another look at MSS allocations as one of the options to free up more spectrum for wireless broadband will not cause them to delay approval of TerreStar’s ATC application beyond this deadline.
Jan 13 update: TerreStar has just received its ATC license, and can look forward to launching commercial service in the “first or second quarter” of 2010 (per its recent statement to Satellite News) once the current testing phase is complete and the company has completed its Preferred Stock Exchange Offer and raised additional funding.
We’re planning to publish our new profile of TerreStar later this month, including forecasts of the market opportunity for both MSS and ATC services, and are also looking forward to trying out the TerreStar Genus phone when its demonstrated at the SATELLITE 2010 show in Washington DC in March. Its going to be fascinating to see whether TerreStar can succeed where others have failed in creating mass market demand for two-way MSS.
Permalink
« Previous Page — « Previous entries « Previous Page · Next Page » Next entries » — Next Page »
