12.10.12
Posted in Financials, Globalstar, Operators, Regulatory, Spectrum at 2:58 pm by timfarrar
On November 13, Globalstar submitted a Petition for Rulemaking to the FCC seeking permission to use its spectrum for terrestrial services, without any of the restrictions imposed under the current ATC “gating requirements”, and shift its authorization to Part 27, as used for other standard terrestrial mobile services.
The petition envisages two parallel rulemakings, the first to consider designation of Globalstar’s downlink spectrum (Globalstar refers to this as the “upper Big LEO band”) as an AWS-5 band, permitting flexibility for any wireless service to be offered, such as TD-LTE similar to Clearwire’s planned deployment in the adjacent BRS/EBS band. Globalstar also suggested that it be permitted to offer a Terrestrial Low-Power Service (TLPS), which would effectively be a separate channel for licensed WiFi service, using both Globalstar’s upper band spectrum and the adjacent unlicensed spectrum.
This would only be one possible option under an AWS-5 designation, but what is pretty smart about the low power TLPS service (similar to WiFi use, which already overlaps with these BAS channels) is that Globalstar may not have to relocate legacy BAS users who currently operate in the 2450-2500MHz band and could be impacted by a new wide area high power network deployment (as was seen with some of Open Range’s towers, due to lack of coordination on Open Range’s part). However, it is possible that even if the FCC permitted the TLPS service to begin immediately, it might require further actions to be taken (or impose other coordination requirements) before full flexibility was granted in the 2483.5-2495MHz band.
UPDATE (12/11): I’m told that legacy BAS users do experience interference from existing WiFi channels above 2450MHz, but that to date the FCC has not taken action to address concerns about interference from unlicensed spectrum users. Whether this will have implications for quick authorization of TLPS is unclear.
The second rulemaking that Globalstar envisages would then extend the AWS-5 designation to include Globalstar’s uplink spectrum (which it refers to as the “lower Big LEO band”), thereby enabling FD-LTE across the whole of the Big LEO band, which Globalstar considers to be the “highest and best terrestrial use” of this spectrum. The reason for separating the two requests is that the lower band (uplink) spectrum is close to the GPS band, and so the FCC is likely to be cautious about permitting terrestrial services in this band after the LightSquared debacle. As a result any authorization of high power LTE usage in the lower band spectrum (even though it would be for uplink only) would require considerable testing and therefore it would take some time before any approval could be granted.
If granted permission to provide TLPS by the FCC, it appears that Globalstar would look to monetize the TLPS offering (prior to gaining authorization for a standard LTE service) by providing spectrum for a small cell buildout, most likely by a major wireless carrier, but possibly by a tower company or technology player instead. Though such a buildout could be undertaken with existing licensed spectrum (e.g. Clearwire’s 2.5GHz band), or new unlicensed or shared spectrum (such as TV white spaces or the 3550-3650MHz band that the FCC intends to auction for shared usage), Globalstar’s advantage is that WiFi capability is built into the vast majority of smartphones, and Globalstar estimates that its licensed channel would be expected to offer around three times the range and speed of similar access points in the existing uncontrolled WiFi spectrum. However, Globalstar would need to move quickly to take advantage of the installed base of WiFi-capable devices, before capabilities to use longer range unlicensed spectrum (White Spaces) or other licensed small cell bands become widely available in smartphones.
As a result, Globalstar would need both quick action from the FCC and to strike a partnership (or long term spectrum lease) in 2013 or early 2014 enabling rapid deployment of a small cell network. In that regard, the fact that the FCC has acted much more quickly to put Globalstar’s proposal on public notice (2 weeks) than the recent LightSquared petition (which took 6 weeks) suggests that the FCC may well consider Globalstar’s proposal with rather more urgency. This certainly marks a significant turnaround in Globalstar’s relationship with the FCC, which was rather difficult (to say the least) back in September 2010, when the Commission suspended Globalstar’s ATC authority.
Globalstar believes that because of the availability of an existing WiFi device ecosystem, its spectrum should be more highly valued than alternative small cell spectrum, such as that owned by Clearwire. Indeed, Globalstar apparently considers that the future possibility of using LTE within its spectrum band could make this spectrum worth even more than the $0.20 to $0.30 per MHzPOP valuation seen in recent transactions such as NextWave’s WCS spectrum.
However, that is very dependent on a major cellular operator deciding to choose Globalstar as the solution for a small cell rollout (as well as future LTE licensing), and it remains uncertain what will happen to the value of “small cell” spectrum in the next year or two, as more spectrum is brought to market (a rulemaking on the 3550-3650MHz band will be considered at the FCC Open Meeting later this week), especially if data traffic on existing LTE networks grows more slowly than expected. Some think that the value of the 3550-3650MHz band will be very low (perhaps $0.01/MHzPOP or less), as has been seen internationally, which could lead operators to decide that putting a multi-billion dollar valuation on Globalstar’s spectrum for use in a TLPS service would be totally ludicrous.
Clearly the potential value of Globalstar’s spectrum is a critical component in securing investors for the new financing that Globalstar is trying to complete in the early part of 2013, because even though duplex revenues are slowly starting to recover, growth in the SPOT business, which has carried the company for the last few years, has recently fallen short of (at least my) expectations. Globalstar needs to raise money to pay for its EUR150M contract with Thales Alenia Space (TAS) to build a further six satellites, plus the launch and insurance for these satellites. At some point Globalstar will presumably need to complete its second generation ground segment upgrade contracts with Hughes and Ericsson, and Globalstar also has to address the April 1, 2013 deadline when $71.8M of Globalstar’s 5.75% convertible notes may be redeemed for cash at the option of the holders (Globalstar stated in its 2011 10-K that it assumed these notes “will be refinanced in 2013 by issuing additional debt”).
Much of the upcoming capex program would presumably be funded by an increase in Globalstar’s COFACE loan facility (which typically would cover 85% of the costs, although it is unclear if this would relate only to work carried out by French companies). It is worth noting that the FCC licenses do not form part of the security package for the COFACE loan, which could make Globalstar’s fundraising easier, if additional funding (from non-COFACE sources) was secured against the FCC license subsidiary. However, if Globalstar does not succeed in raising the required funds, this also poses the question of whether (in the event of a bankruptcy) the existing convertible note holders could sell the spectrum licenses and receive a recovery, even if the COFACE loan is not paid off in full by a sale of the satellite assets. Such a possibility may complicate negotiations over the upcoming refinancing of the 5.75% convertible notes.
More importantly, it will be very important to see whether the FCC follows the DISH model, and simply grants Globalstar a separate terrestrial license (alongside its satellite license) which could be monetized at a later date (regardless of the ultimate fate of Globalstar’s satellite system), or if it follows the LightSquared path, where (because LightSquared is operating under an ATC waiver) the L-band MSS spectrum cannot easily be disentangled from the continued provision of satellite services. After all, past bankruptcies in the MSS sector have shown how hard it is for creditors to achieve a large recovery from billions of dollars invested in MSS satellite hardware, and at least in the case of DBSD and TerreStar (albeit in a situation with no meaningful existing satellite business, unlike Globalstar), the in-orbit satellites were seen as a potential cost associated with obtaining the spectrum licenses, rather than valuable assets in their own right.
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12.06.12
Posted in DISH, LightSquared, Operators, Regulatory, Spectrum at 12:34 pm by timfarrar
No not his assertions that “I still believe that we had a great, and we still do have a great vision” and that “a bankruptcy would not necessarily wipe out the equity holders of LightSquared because the spectrum it owns retains value”, which look like they are moving even further away from being realized as time goes on.
LightSquared’s latest plan is to relinquish terrestrial rights in part of its L-band spectrum in exchange for the right to use additional government spectrum used by NOAA. However, I’m told that although NOAA may be prepared to allow terrestrial use of the 1675-80MHz spectrum band (subject to payment of relocation costs to move their radiosondes to the 401-406MHz band), LightSquared’s plan may now be derailed by the apparent intention of Congress to mandate an auction of “at least 15MHz” of spectrum in the 1675-1710MHz band, thereby requiring LightSquared to buy this additional spectrum at auction rather than being given (what they are portraying as) a “swap”.
After all, most Democrats appear to have concluded that “What happened to LightSquared is disappointing…But unfortunately that ship has sailed”. NOAA would presumably also like to maximize the auction proceeds to fund the relocation of its other systems in the 1695-1710MHz band which will also be auctioned as (lower value) uplink spectrum. As a first step, NOAA’s position may become clearer next week once the initial comments are filed in response to LightSquared’s petitions for rulemaking.
What I’m actually referring to in the title of this post is Phil’s comment on my blog post back in August 2011 that “Everyone knows Ergen is not going to build out a network. No one trusts him, including the FCC. They are not going to put their eggs in that basket because they know he will make them look foolish.”
That does appear to be a pretty good summary of the underlying rationale behind the FCC’s draft AWS-4 Order, circulated just before Thanksgiving, because the Order does not impose any anti-windfall conditions that would stop DISH from selling the spectrum to another operator, but instead attempts to mitigate this windfall (a concern the FCC is acutely sensitive to) by ensuring that the proceeds of an H-block auction can be maximized. If sold to existing operators, then the 50MHz of spectrum in AWS-4 and H-block combined would help to preserve the current four player wireless market in the US and would also mean that (as the FCC Chairman’s former advisor put it this week) “we’re not in the rush we originally thought” to address the purported spectrum crunch.
Despite this encouragement to cash in, DISH objected to the draft order, with Ergen appealing in person to each of the five Commissioners to make changes. However, the FCC fired back at DISH and has now scheduled the order for a public vote at the meeting on December 12, sending a signal of unanimity to DISH, and perhaps also discouraging any Commissioners who might be wavering from taking a position that would increase DISH’s potential windfall at the expense of H-block auction proceeds for the Treasury. Sprint has maintained its opposition to the latest changes proposed by DISH, and appears to have been successful in fending off any modification to the original draft (if Sprint was losing ground then I would have expected to see more vocal objections, as opposed to the current strategy of providing behind the scenes briefings and a rather non-specific ex parte filing).
Thus I’m left wondering whether DISH will now be persuaded that its best interests lie in selling out (especially given the diminishing number of available partners), or if instead DISH will continue to fight with the FCC (and challenge the legality of the Order as outlined in last week’s ex parte filing), potentially holding up the deployment of both AWS-4 and the H-block?
Could Sprint have designs on the AWS-4 spectrum as well (after all, Ergen is known for fighting vigorously right up to the time he does a deal with an opponent), or will it simply want to take advantage of disposals that AT&T would be forced to make after buying DISH’s spectrum? We should know more about Ergen’s intentions very soon, and Sprint’s proxy filing, now delayed until December 21, should make even more interesting reading than that of MetroPCS, because it will have to reveal if discussions have been going on with DISH behind the scenes over any potential deals.
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11.17.12
Posted in DISH, Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 11:52 am by timfarrar
Over the last 36 hours there has been a constant stream of stories about DISH Network’s negotiations with various players to launch its proposed wireless network, in what appears to be a last ditch attempt to deflect the FCC from its declared intention to impose strict interference conditions on DISH’s spectrum in order to make the H block auctionable.
First we saw reports of DISH’s “exploratory stage” talks with Google, which unsurprisingly led to massive speculation about Google’s desire to get into the wireless business, largely omitting any mention of Google’s previous (financially disastrous) investment in Clearwire, which was motivated solely by a desire to create more competition and cheaper wireless service and had nothing whatsoever to do with enabling Google to become a wireless operator.
Now we’ve seen reports about DISH’s unsuccessful bid over the summer for MetroPCS, as revealed in MetroPCS’s preliminary proxy statement filed last night. We also saw DISH highlighting that 3GPP standardization work has been completed, with the implication that DISH could move forward very quickly if the FCC approved the network without new interference conditions.
However, it seems clear that the FCC is having none of it, with officials briefing that they are close to a decision, which is expected to confirm that the H block will be auctioned for high power use and therefore the lower part of DISH’s uplink band will face significant powwer restrictions. In other words, the FCC is placing a higher priority on ensuring Sprint has sufficient LTE spectrum (i.e. can extend its 5x5MHz G block LTE network to a 10x10MHz network) and moving forward with an auction of the H block to raise $1B+ than they are on trusting DISH to become a new entrant in the wireless market.
In light of the Sprint-Softbank and TMobile-MetroPCS deals, the FCC has achieved its goal of having four viable players in the US wireless market, and so presumably does not see as much need to encourage a new entrant. Indeed I would expect the FCC would be relatively content to see the DISH spectrum go to AT&T, if it could then “encourage” AT&T to sell some of its PCS spectrum to Sprint (along the lines of Verizon’s AWS spectrum deal with TMobile). We might even see a similar “swap” in the PCS band between TMobile and Sprint (with Sprint getting more of the spectrum and paying some cash to TMobile) as an alternative to a potential rival Sprint bid for MetroPCS. After all, TMobile has far more spectrum per subscriber than any of the other three major players (if Clearwire’s holdings are excluded).
Does DISH have many other options left to build out a new network of its own, as opposed to selling the spectrum to AT&T and pursuing a merger with DirecTV? There still appears to be uncertainty about the status of a potential deal with Clearwire, though DISH’s 10-Q confirmed (as I suggested previously) that it has raised its stake in Clearwire’s debt by $400M during the third quarter to a total investment of $745M (note that Clearwire is not named in the 10-Q, but the amount invested is too large for the investment to be in LightSquared, given other declared holdings).
DISH has undoubtedly talked to almost everyone in the wireless industry, but apparently these talks are currently only at the exploratory stage, which is quite surprising given how much time has elapsed. Of course what the MetroPCS proxy statement reveals is that everyone else has been talking as well, and as set out below, the proxy provides some very interesting nuggets about what’s happened over the last 18 months, once you decode the references to Companies A through H.
Company A: DBSD. MetroPCS determined that DBSD’s spectrum was more attractive than TerreStar’s spectrum and MetroPCS made a binding offer for the spectrum in March 2011, but lost out to DISH.
Company B: TerreStar. MetroPCS ultimately decided not to pursue TerreStar, leaving Harbinger out in the cold in June 2011, but then negotiated unsuccessfully with DISH during the summer of 2011 over a potential sale of spectrum, joint venture or contribution of the spectrum in exchange for equity in MetroPCS.
Company C: DISH subsequential expressed interest in buying MetroPCS, starting in March 2012 when it became clear DISH would not receive its hoped-for ATC waiver, and ultimately made a bid of $11 per share in August 2012, which was rejected by MetroPCS because it was less than the value offered by TMobile. DISH then indicated that it was unwilling to pay a higher price.
Company D: Clearwire. MetroPCS offered to buy spectrum from Clearwire in late 2011 (and earlier had even considered buying the whole company), but was unable to agree on terms. These discussions were revived in June 2012 when Clearwire again suggested a sale of spectrum and a “substantial investor” (Sprint or perhaps DISH???) proposed splitting the company between themselves and MetroPCS. Those “occasional” discussions continued up until the TMobile deal was announced.
Company E: Leap. Leap offered to sell “excess” spectrum to MetroPCS in the first half of 2011, but as early as June 2011 had decided to sell the spectrum to another wireless company (Verizon). This implies both that Verizon sat on the Leap deal until it had completed its negotiations with SpectrumCo in December 2011, and that the transfer of the Chicago 700MHz A block spectrum to Leap was presumably only included so the deal could be portrayed to the FCC as a “swap”. (Of course Leap’s presumed follow-up deal of a sale to US Cellular has now been derailed by US Cellular’s exit from the Chicago market and sale of its spectrum to Sprint). In May 2012, Leap asked MetroPCS to consider a combination of the two companies, but MetroPCS decided such discussions would not be productive. Then in July 2012, Deutsche Telekom also raised the prospect of combining Leap with TMobile and MetroPCS, as part of a single transaction, but MetroPCS declined, presumably because of the added complications it would entail.
Company F: AT&T. As was widely reported at the time, MetroPCS was in discusssions with AT&T in 2011 about potential asset sales as a condition of the TMobile acquisition. However, this did not come to fruition because the acquisition was blocked by the DoJ and FCC. Later, in August 2012, MetroPCS discussed approaching AT&T, but the consensus opinion was that AT&T would not be interested in buying MetroPCS.
Company G: Sprint approached MetroPCS about a potential acquisition in September 2011, and this led to the abortive bid in February 2012, which was vetoed by the Sprint board. Even after this time discussions continued with Sprint, and Sprint indicated in August and September 2012 that it was still interested in an acquisition of MetroPCS.
Company H: Verizon. MetroPCS held discussions with Verizon in the spring of 2012 about potentially buying some of the AWS and 700MHz spectrum that Verizon would need to divest to get approval of the SpectrumCo transaction. However, Verizon was not particularly interested in selling the AWS spectrum to MetroPCS (and entered into a deal with TMobile instead).
What all this appears to show is that DISH has looked at a number of transactions which involve further investment in the sector, but the main reason these have not come to fruition is that DISH is trying to pay as little as possible for any acquired assets. Alternatively, if DISH was to be a seller, then it was looking for too rich a price (at least for MetroPCS). In this context, it is likely that only Clearwire would be prepared to do a deal to sell assets to DISH on such terms, as I’ve speculated previously. It also seems pretty clear that the potential network sharing deal mentioned in the WSJ article about the discussions with Google would most likely be with Clearwire rather than Sprint, because the benchmark terms set by Sprint’s deal with LightSquared would be unattractive to DISH. As a result, it seems we are back to where we started – could DISH still pull off a deal with Clearwire (and does it want to in the current circumstances?), or will DISH end up selling its spectrum to AT&T and pursuing a merger with DirecTV instead?
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10.24.12
Posted in DISH, Financials, Operators, Regulatory, Spectrum at 11:41 am by timfarrar
Is Charlie Ergen giving up on his wireless plans? An interview with Bloomberg published this morning seemed to signal a change of stance, particularly the explicit suggestion that Ergen would be open to simply selling his spectrum to AT&T, when his (coded) message for the last year has been that AT&T would need to buy the whole of DISH (at a huge premium).
Not only has the Softbank deal enabled Sprint to escape from the box DISH had been trying to put it in, but by buying McCaw’s stake in Clearwire, and indicating to other strategic investors on the board that further equity purchases are up for negotiation, Sprint looks to have headed off Ergen’s planned deal to purchase assets from Clearwire.
Despite this, perhaps Ergen could still do a deal with other partners like Carlos Slim or DirecTV, but it is harder to see the rationale for investing in building a fifth competitive operator than it was a month ago, when Sprint (and perhaps even T-Mobile) were perceived to be in a much weaker competitive (and financial) position. In addition, we may be seeing AT&T attempt to warn off Carlos Slim from a deal with Ergen, in the form of mutterings about foreign ownership of other wireless operators.
So it looks like Ergen may now turn his attention towards a potential merger deal with DirecTV. In the short term that means putting pressure on DirecTV to come to the table, most obviously by competing with them in Brazil. Indeed, Echostar told the FCC at the end of September that it planned to move the Quetzsat satellite to the 61.5W slot, freeing up AMC-15 to be relocated to 45W in order to provide service into Brazil “as soon as January 2013“.
Wireless and broadband could also be a key part of this deal, via an alignment of both satellite TV operators with AT&T, similar to the Verizon-cable TV partnership, and that would be cemented by the sale of DISH’s spectrum to AT&T. Nevertheless, I would expect the sale to come ahead of an agreement with DirecTV, simply because being left out of a DISH-AT&T alliance would put even more pressure on DirecTV. As I noted last December, this alignment would cement AT&T and Verizon’s market leadership. However, given that the FCC backed off mandating wholesale access as a condition of approving the Verizon/SpectrumCo deal, the only plausible way to promote competition to these two players may then be to allow Sprint and T-Mobile to merge.
Of course putting a price on DISH’s spectrum is hard, but I suspect that the most appropriate comparison for the AWS-4 spectrum is the WCS band which AT&T purchased recently, because neither band is usable immediately (unlike AWS). AT&T paid NextWave more than expected for WCS, but this was offset by the fact that AT&T already owned a substantial part of the band, for which it had paid very little. I would therefore expect an AWS-4 sale to be at a fairly similar price to that AT&T paid NextWave for the usable parts of the WCS spectrum: somewhere in the range of ~$0.30-$0.40/MHzPOP (depending on how much value is attributed to the C/D blocks and AWS holdings), i.e. of order $3.75B-$5.0B plus perhaps another $1B for DISH’s 700MHz E block spectrum.
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10.16.12
Posted in LightSquared, Operators, Regulatory, Spectrum at 12:30 pm by timfarrar
Today the House Energy & Commerce Committee has released the documents from last month’s hearing, which makes for some interesting reading.
For one, its intriguing that the FCC Chief Economist (on p33 of the PDF) highlights “just how lucrative ATC service could be”, noting that “an entrepreneur that purchased a mobile satellite property wth 34 MHz of ATC-eligible spectrum and successfully rolled out ATC service in partnership with a CMRS incumbent could obtain a rent of $11 billion, equal to the difference between the value of the spectrum ($12 billion) and the cost of developing the required satellite system ($1 billion).”
That $12B valuation of course is the same as LightSquared’s economic consultants used, back in June 2011, to estimate that the January 2011 waiver was worth $10B to LightSquared. The documents also indicate (p10 of the PDF) that the FCC Chairman was warned in September 2009 about the “equity considerations of providing a ‘windfall’ to companies who did not acquire the licenses at auction” and even at that time “changing the ATC handset requirements” was under discussion.
However, far more interesting are the details of the discussions over the extension to the very short comment period on the waiver request in November 2010 (pp13-15 of the PDF). It is clear that the FCC had essentially already agreed the waiver with LightSquared and had “discussed [the timetable] previously”. The FCC was working to this “tight” timetable (later derailed by NTIA concerns about GPS interference) so that order could be issued on December 20, a date that was described as “critical”.
Of course (although it is not stated in the emails) the reason that this date was so critical was that (as I suspected at the time), the Commission intended to (and did) vote on net neutrality rules at the December 21, 2010 Open Meeting, which excluded wireless networks from net neutrality obligations. As a result, if the FCC had been able to announce the LightSquared waiver at that meeting, it would have been possible to say that at least one major 4G network provider had signed up to net neutrality principles of its own accord, effectively endorsing LightSquared as a competitor to the major cellular operators.
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Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 8:44 am by timfarrar
Despite considerable efforts by Charlie Ergen, it looks like the Softbank deal may now have enabled Sprint to escape from the box of constrained capital, limited spectrum and a second rate network that Sprint could have been confined to, if it had failed to gain access to either usable H block spectrum or Clearwire’s network on economically advantageous terms. Many thought that Sprint would move to purchase Clearwire immediately after the Softbank investment, but today sources are denying that is the intention, stating that Sprint has no intention of taking part in mergers or acquisitions until the Softbank deal is finalized in mid-2013. This timeline also implies that Sprint will not move to disrupt the T-Mobile/MetroPCS merger, which is expected to close in 2013Q2.
So the obvious question is why did Sprint need to issue a $3B convertible bond to Softbank right now? I think that can only be intended to warn off others from doing a deal with Clearwire in the interim, by offering John Stanton the carrot of improved economics and/or further investment from Sprint. Of course there are not many options for Clearwire to sell spectrum, now that T-Mobile and MetroPCS, the two operators most frequently rumored to have designs on Clearwire’s spectrum, are getting together.
As a result, I think Sprint’s actions appear to confirm that Clearwire was about to pull the trigger on a deal with Ergen, as I suggested last month, involving an asset sale and/or WiMAX customer transfer, in exchange for a combination of cash and debt. Notably, receipts from a sale of network assets (as opposed to a spectrum sale) would not have to be used to repurchase Clearwire’s first lien debt, suggesting that this could be a preferred way for Clearwire to raise funds. In addition, I’m told Ergen now holds in excess of $900M of Clearwire’s debt (not all first lien), and some of that could potentially have been traded for Clearwire spectrum.
Reports on the Sprint/Softbank deal have also suggested that both Carlos Slim and SK Telecom have considered investments in Sprint, and it is worth noting that SK Telecom invested $60M in LightSquared back in 2010, while Slim is rumored to be buying LightSquared debt. In fact I’m told that further significant purchases of LightSquared debt have taken place in recent weeks. If one or both of those two players therefore continue to maintain their interest in US telecom assets (which has obviously included MSS-ATC spectrum similar to that held by DISH), then Ergen may be the last, best potential partner available.
So has Sprint now prevented Ergen from achieving a deal with Clearwire? I’m told that (at least with the current ownership situation) Sprint would have no ability to veto such a transaction, so presumably Stanton will now be trying to extract vastly improved economics from the existing capacity agreement with Sprint in order to forego a DISH deal. What concessions will Sprint be prepared to make, and if it does give ground, where does that leave DISH? After all, it doesn’t seem that AT&T is prepared to pay Ergen’s asking price (perhaps as high as $80-$90 per share?) to purchase the whole of DISH anytime soon. Ergen must certainly be fuming at how FCC delays have prevented him from moving forward, while potential partners seem to be rapidly exiting the dance floor. At least he appears to have made a profit on his investment in Clearwire, but that may be little consolation if it now proves more difficult to find a way to monetize DISH’s other, much larger, spectrum investments.
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10.13.12
Posted in Regulatory, Spectrum at 7:11 am by timfarrar
As I pointed out last week, despite growing skepticism over “What happened to the spectrum crunch?“, the FCC Chairman has been busy making speeches about how “U.S. mobile data traffic grew almost 300% last year, and mobile traffic is projected to grow an additional 16-fold by 2016″ and asserting that
“There were many skeptics [in 2009] about whether we faced a spectrum crunch. Today virtually every expert confirms it.”
One would assume that the FCC Chairman regards the CTIA as experts, because after all they have been amongst the foremost cheerleaders for the spectrum crunch over the last three years. Indeed, upon releasing their latest wireless industry statistics, CTIA’s press release on Thursday proclaimed that “Wireless Network Data Traffic Increased 111 percent and Highlights Industry Need for More Spectrum”.
However, the press release buried the far more significant message in the CTIA’s actual data (which counts wireless network traffic from 97% of all US wireless subscribers – it is unclear if any WiFi traffic is included, but it appears not), namely that growth in data traffic per device came almost to a full stop in the first half of 2012 (compared to the previous six months), presumably due to a combination of:
1) changes in user behavior (offloading to WiFi),
2) dilution from less active users buying smartphones, and
3) data caps beginning to impact some high end users.
According to the CTIA survey, total wireless data traffic in the US in the first six months of 2012 was 635B Mbytes, up only 21% on the 526B Mbytes recorded in the previous six month period. This compares to the 54% growth seen in wireless data traffic between H1 and H2 of 2011, and the 51% growth in traffic between 2010H2 and 2011H1.
Even more remarkably, with the number of smartphones and wireless connected tablets growing by 16% between 2011H2 and 2012H1, data traffic per device was only up about 3% (based on the average number of devices in each 6 month period), compared to 29% between H1 and H2 of 2011 and 23% between 2010H2 and 2011H1.
As shown in the chart below, if we extrapolate this same growth in traffic per device to the second half of 2012, then total data traffic during the period will be about 750B Mbytes, and total traffic for 2012 will have increased only 60% compared to 2011. That is only half of Cisco’s Feb 2012 estimate of 118% growth in North American mobile data traffic between 2011 and 2012, and would clearly force a complete re-evaluation of future traffic projections. However, just from the data in the first half of 2012, we can already see that traffic growth is clearly not “exponential” and has now passed its peak. More importantly, if growth in traffic per device has been brought under control, then a spectrum crunch is no longer possible in the foreseeable future, because smartphone penetration is already approaching saturation.
As others have pointed out, “there is no more scarcity of wireless spectrum than there is a shortage of, say, the color purple”. Its therefore perhaps ironic to note that back when the last Emperor Julius (Caesar) was in charge, “virtually every expert confirmed” that the color purple was expensive, difficult to find and limited by regulatory fiat to a tiny elite group.
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10.06.12
Posted in LightSquared, Operators, Regulatory at 2:28 pm by timfarrar
As I noted in an earlier post, it was quite surprising to read LightSquared’s assertions in court last Monday October 1 that:
“We’ve made substantial progress on our regulatory issues…Short of a few sections of the country, dead zones we will attempt to resolve through other means, this would give us 4G LTE coverage throughout the country. It’s not the proverbial home run everyone said we’d hold out for, but it is a significant terrestrial network.”
As far as I know, no-one has pointed out that these “few sections of the country” where LightSquared would have problems using the 1675-80MHz band it has asked to share, actually include 69 fixed radiosonde launch stations in the lower 48 states (plus additional mobile launch sites when severe weather conditions such as hurricanes are anticipated), from which the weather balloons can drift 180 miles or more, depending on which way the wind is blowing. A quick look at a map of these locations shows a near uniform distribution of sites around the country and that a 180 mile exclusion zone around each station would make it impossible to provide service almost everywhere in the US.
Of course in the past LightSquared demonstrated its skill at predicting and even controlling which way the political winds were blowing. So maybe they now intend to see if that capability extends to real life weather as well?
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10.04.12
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 1:23 pm by timfarrar
FCC Chairman Genachowski took a trip to Wharton today, to tell a bunch of students about “the incredible world of mobile communications”. However, he also gave away an enormous amount of information about the FCC’s spectrum agenda, which so far has gone almost completely unreported. As first sight one might be distracted by such nonsense as “U.S. mobile data traffic grew almost 300% last year, and mobile traffic is projected to grow an additional 16-fold by 2016″ and the boast that he alone knew “that something was up”, “did the math” (wrongly) and “sounded the alarms…about the looming spectrum crunch”. Incredibly Chairman Genachowski even makes the ludicrous claim that:
“There were many skeptics [in 2009] about whether we faced a spectrum crunch. Today virtually every expert confirms it.”
Of course this comes just at the time when journalists are starting to ask “What happened to the spectrum crunch?”
Once you’ve stopped laughing at all of this, the meat of the speech is in fact very useful, as the Chairman indicates just how he hopes the “audacious” target in the National Broadband Plan of freeing up 300MHz of spectrum by 2015 will be “exceeded” by a combination of auctions, removal of regulatory barriers, clearing the TV bands and spectrum sharing. First of all, 75MHz of AWS spectrum will be auctioned, including, in 2013, the 10MHz of H-block spectrum desired by Sprint. This confirms that DISH has lost the battle to avoid a 5MHz shift in its uplinks, but in compensation DISH will at least be authorized to use the full 40MHz of spectrum (2005-2025MHz up and 2180-2200MHz down) for a terrestrial network “later this year”.
Secondly, an additional 50MHz of AWS-3 spectrum (desired by T-Mobile) will be auctioned, based on spectrum sharing with the DoD in the 1755-1780MHz uplink band. Finally, AT&T will get its rebanding of the WCS spectrum approved. The Chairman even indicates that the FCC is “working with stakeholders to enable use of the portions of the mobile satellite spectrum in the L- and Big LEO bands [i.e. LightSquared and Globalstar] for terrestrial service” although notably this spectrum is not included in the 2015 total, indicating that these efforts may not be concluded quickly.
The most obscure reference is in the unstated 15MHz balance of AWS spectrum planned for auction before 2015. Given the short timeframe, this can only be the 1695-1710MHz spectrum being reclaimed from NOAA. Presumably this block will be made available as uplink spectrum (because it is adjacent to AWS-1 uplinks at 1710-1755MHz) and as such it will be attractive for AT&T to pair with the WCS spectrum (which will probably all be converted to downlinks). However, this leaves LightSquared in a bind over the spectrum “swap” it proposed last Friday, because LightSquared does not want more uplink spectrum (let alone having to buy it in an auction), and after giving up the 1695-1710MHz block, NOAA will need to use the 1675-80MHz band even more intensively for weather balloons.
Looking at the bigger picture, the situation may be made more difficult not just for LightSquared, but for DISH and Clearwire as well, because the FCC’s actions appear designed to give all of the major wireless operators the spectrum they are hoping for in the near term. Specifically, the FCC intends to free up the H block for Sprint, the AWS-3 block for T-Mobile and 1695-1710+WCS for AT&T, while Verizon has already had its SpectrumCo purchase approved. Especially in the wake of yesterday’s T-Mobile/MetroPCS merger, this makes me wonder just how many attractive alternatives Charlie Ergen still has to a deal with Clearwire for buildout of his 2GHz spectrum?
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09.28.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:05 am by timfarrar
So LightSquared has filed a modification application this morning with the FCC, proposing that it be granted access to the 1675-80MHz spectrum as an additional downlink, in exchange for relinquishing rights to deploy a terrestrial network in the 1545-55MHz band. LightSquared also asks the FCC to open a rulemaking proceeding to develop service rules for terrestrial use of the 1526-36MHz band. During the pendency of this proceeding, LightSquared offers to “voluntarily” not deploy the L-band downlink spectrum on its terrestrial network.
This proposal certainly represents a climbdown from the options that LightSquared presented to the FCC in May, coming close to the (worst case) 5MHz option presented by LightSquared at that point, but falling short of that demand for “quick start” options that would allow LightSquared “to expeditiously recommence deployment” in 5MHz of the spectrum and leaving open the transition plan for eventual use of the lower L-band spectrum. Indeed several critical issues, like how the pairing would work between the L-band uplink and 1670-80MHz downlink, how concerns about handset (uplink) interference would be addressed, and what level of coverage can be achieved while protecting “the integrity of continuing, essential government operations in 1675-1680 MHz and the adjacent spectrum at 1680-1695 MHz” are left undefined.
[UPDATED 9/28 & 10/3] Indeed the use of 1675-80MHz by LightSquared could prevent the FCC from auctioning 15MHz of spectrum in the 1675-1710MHz as mandated by Congress, and will certainly meet with heavy opposition from NOAA. Critically, as identified in the NTIA report on this band back in October 2010, there is no ITU allocation for mobile service in the spectrum above 1675MHz, a matter which is intended to be addressed by WRC-15. A NOAA presentation to the ITU highlights that the decision to free up the 1695-1710MHz band will require weather balloons (radiosondes) to use the 1675-80MHz band and that “Radiosondes and Broadband Mobile cannot share common spectrum in same geographic areas”. Given that weather balloons need to be used across the US and can drift for hundreds of miles during their flights, it is rather surprising that LightSquared’s lawyers suggested in court on Monday (Oct 1) that:
“We’ve made substantial progress on our regulatory issues…Short of a few sections of the country, dead zones we will attempt to resolve through other means, this would give us 4G LTE coverage throughout the country. It’s not the proverbial home run everyone said we’d hold out for, but it is a significant terrestrial network.”
Instead, LightSquared has told the FCC that it “believes that it is necessarily relieved of the obligation to meet the build-out milestones” imposed back in 2010 and gives no indication of any desire to rapidly deploy a network, as opposed to securing access to spectrum that could then be sold to another wireless carrier. While LightSquared discusses the use of the spectrum it would be granted for a “new, competitive broadband network” the commitment to provide “wholesale access” is notably absent from its new submissions.
LightSquared quotes the PCAST report pretty heavily, highlighting that (as I suspected) it is jumping on the PCAST bandwagon to gain FCC and White House support. However, it is ironic that while LightSquared suggests it is looking “to share [the 1675-80MHz band] with certain government users”, in fact it is still asking for a spectrum “swap” to “use the 1675-1680MHz band to provide a commercially-useable, terrestrial wireless broadband service as part of a contiguous 10 MHz downlink channel”.
That is what is needed to sustain Harbinger’s argument that LightSquared is still worth the billions of dollars required to maintain control and after the recent successes with the FCC it looks like the debtholders will now wait a few months to see how this strategy plays out rather than arguing for an immediate termination of exclusivity which would allow them to force Falcone to “put his money where his mouth is” and pay them off at par. However, it seems likely that if this attempt fails, the debtholders will be quick to declare “that’s it for me”.
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