05.18.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 9:04 am by timfarrar
As more information starts to emerge from real world testing into whether LightSquared’s terrestrial network will interfere with GPS receivers, the news appears to be fairly bad for LightSquared on both the technical and political fronts. In addition to Qualcomm’s comments last week, suggesting that the filters in their A-GPS chipsets might need to be upgraded, New Mexico state officials have submitted a letter stating that their testing “substantiate[s] concerns that the LightSquared network will cause interference to GPS signals and jeopardize 911 and public safety nationwide”. Meanwhile the FCC has been asked by Sen. Chuck Grassley (R-Iowa) “for more information on its review” of LightSquared’s plans, including “all communications between the FCC and Falcone or any other Harbinger Capital and LightSquared employees [and] all internal FCC communications regarding LightSquared or Harbinger Capital” and language has been included in the National Defense Authorization Act (NDAA) that “requires the U.S. Secretary of Defense to notify Congress if he determines that widespread interference with the military’s use of the GPS is caused by a commercial communications service”.
What I’ve always found intriguing is that this issue apparently came out of nowhere to potentially derail the whole LightSquared buildout plan. LightSquared has highlighted that terrestrial use of the L-band has been anticipated since 2003, and that the GPS Industry Council negotiated several agreements with LightSquared (previously SkyTerra and before that MSV) on out-of-band emissions into the 1559-1610MHz band, starting in 2002 and extending right up until August 2009. Indeed in March 2004, the GPS Industry Council urged “the Commission to grant the above referenced [ATC] applications of Mobile Satellite Ventures Subsidiary LLC (“MSV???), and to do so as soon as possible”, commending MSV “for its proposal to use its spectrum in a responsible manner that ensures the continued utility of GPS receivers operating in the vicinity of MSV ATC stations”.
However, it appears that the GPS Industry Council never recognized the potential for GPS receiver overload from transmissions within LightSquared’s own L-band frequencies. Given their comments above, it seems plausible that they were lulled into a false sense of security by LightSquared’s cooperation over out-of-band interference, including limiting the PSD to -100dBW/MHz or less, a very aggressive commitment, giving a high level of protection to GPS receivers. Of course, LightSquared also benefited from that commitment, because to filter LightSquared’s emissions to this level requires about 3-4MHz of separation between the edge of the GPS band at 1559MHz and LightSquared’s terrestrial transmissions at 1550-1555MHz. When similarly challenging constraints were imposed on Globalstar at 1610MHz, it meant that Globalstar would be less able to operate high power terrestrial transmissions at the bottom edge of its L-band frequencies, restricting Globalstar’s ability to support ATC in its more limited Big LEO L-band allocation (and thereby hampering potential competition to LightSquared).
Given the complexity of these issues and how critical their resolution was in obtaining LightSquared’s ATC license, it is hard to believe that no-one at LightSquared was aware of the possibility of GPS overload interference until it was raised in December 2010. Indeed, in an offhand comment in March 2011, even Mr. Falcone’s wife apparently suggested that “this type of interference has always been a potential issue for GPS”. Nevertheless, it appears that no mention is made of such problems in the risk factors section of SkyTerra’s 10-K filings with the SEC, and the 2009 10-K filing basically states the opposite, noting that “We have also agreed to comply with requirements on our user terminals and base stations that we negotiated with the GPS industry to provide additional protection to GPS receivers, beyond existing mandatory limits. Our compliance with these limits is a condition of our ATC license. All of our broadband wireless system designs take into account these requirements and specifications. We believe that they do not materially limit our network deployment or our ability to achieve our business plan”.
Summing up, it seems that the GPS Industry Council clearly dropped the ball when it came to analyzing the potential impact of LightSquared on GPS receivers. However, they may very well feel that they were the victim of a bait and switch play, thinking that MSV/SkyTerra was being extremely cooperative with its expressed intent to “ensure the continued utility of GPS receivers operating in the vicinity of MSV ATC stations”, when in reality out-of-band interference was not most important issue to consider.
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05.10.11
Posted in Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 3:04 pm by timfarrar
As testing continues into whether LightSquared will interfere with GPS signals, Qualcomm has filed the results of its own initial cellphone testing with the FCC. Of course, LightSquared is depending on Qualcomm as its principal supplier of chipsets and developer of the GMSA/S-EVDO air interface for its satellite services, so it might have been expected that Qualcomm would confirm the position asserted by LightSquared supporters, that cellphones won’t need to use filters to prevent interference with their A-GPS location chips. However, in fact Qualcomm has come to the initial conclusion that “additional rejection of 30dB may be required” and that the current filters used in its A-GPS chipsets may need to be upgraded, in view of how close the upper part of the LightSquared downlink band (the Phase 0 spectrum at 1550-1555MHz) is to the GPS band. Given that most people agree that the interference problem will likely be much worse for other types of GPS receivers, this is not an encouraging result for LightSquared.
LightSquared may therefore be unable to use the Phase 0 spectrum unless receiver standards are imposed on GPS receivers, as the FCC suggested in its recent 2GHz ruling, which indicated that “incumbent users…must use receivers that reasonably discriminate against reception of signals outside their allocated spectrum”. However, Inmarsat indicated yesterday that on April 25, it signed an amendment to its Cooperation Agreement with LightSquared, and received an additional payment of $40M to accelerate the clearing of the Phase 1A spectrum (i.e. to free up the additional 2x5MHz block at the bottom of the L-band, which under the original agreement would have been made available sometime between February and November 2012). Thus it appears that even LightSquared may be acknowledging that the top part of its frequency band will be largely unusable for the foreseeable future, unless and until receiver standards are imposed on the GPS community, requiring a multi-year program of equipment upgrades and recertification, with all of the additional costs and delays that would imply.
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04.07.11
Posted in Regulatory, Spectrum at 12:08 pm by timfarrar
As I noted when AT&T announced its deal with T-Mobile a couple of weeks ago, one of the most interesting facts in AT&T’s presentation was that it included significant detail on the traffic growth experienced on AT&T’s wireless network. Back in January, T-Mobile also put forward its own expectations that traffic would grow at 60% p.a. between 2010 and 2015.
If we compare these figures (assuming T-Mobile’s figure holds for 2009 as well) and look at the ratio of 2014 data traffic to that in 2009 then the Cisco projections are a striking outlier, and the AT&T and T-Mobile expectations are dramatically lower than any of the analyst forecasts. It should also be noted that the AT&T network traffic estimates appear to include the acquisition of TMO, so the actual growth in traffic per subscriber is even lower – AT&T states that its expectation is for 8-10 times growth between 2010 and 2015, very much in line with TMO’s growth projection. Even if data traffic on other wireless networks grows faster than on AT&T’s network, it hardly accounts for a factor of two difference in overall growth, let alone a factor of 4-5 as Cisco estimates.
So why do we hear so much from the FCC Chairman about the Cisco forecast as justification for the FCC’s actions to save us from the supposed “spectrum crisis”? As commentators have pointed out, it is after all primarily a sales brochure for Cisco’s network equipment. As an aside, the latest Feb 2011 Cisco forecast even appears to overestimate current wireless traffic, estimating North American wireless data traffic was 49Pbytes per month in 2010, when an extrapolation from AT&T’s figure of 12Pbytes per month at the end of 2010 (assuming AT&T is 40% of US traffic, and the US is 90% of North America) would indicate that the actual traffic is closer to 33Pbytes per month. Why also is the FCC basing policy on its deeply flawed October 2010 paper, which assumes 35 times growth between 2009 and 2014?
In my conversations with knowledgeable observers since the AT&T/T-Mobile deal, there seems to be an increasing recognition that the “spectrum crisis” is exaggerated and that there is no near term shortage of spectrum. If the FCC wants to make the case that we need more spectrum by 2018 or 2020 then that’s fine, and maybe it is true that political action is needed on incentive auctions now so that broadcast TV spectrum can be brought into use by 2018. However, basing your arguments on projections that are hugely exaggerated risks the whole edifice tumbling down once these errors are exposed.
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04.06.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 10:50 am by timfarrar
One of the key issues for LightSquared is that the downlink transmissions from its base stations are expected to interfere with a wide range of GPS devices, which operate in adjacent frequencies. LightSquared will be using part of the L-band downlink frequencies (1525-1559MHz), while GPS (and GLONASS) operate within the 1559-1610MHz band. Though LightSquared’s base stations will be fitted with filters which cut off the signal abruptly at the top of the L-band, so LightSquared’s signals do not leak into the GPS band, the filters on most GPS devices do not have such a strict cutoff at the bottom of the GPS band, and so can be overwhelmed by the very high power LightSquared terrestrial transmissions in the adjacent L-band frequencies. A good illustration of the impact is given in this chart from a Deere & Company submission to the FCC:
As this chart shows, the types of receivers that are most affected are high precision receivers used in applications such as farming and surveying, although lower precision receivers such as those incorporated in automobile navigation and even in cellphones may be impacted closer to the LightSquared base stations. Aeronautical navigation is an area of particular concern, given the safety critical nature of this application. Testing is now ongoing to determine the extent of interference, and early estimates of the impact vary greatly, ranging from a few hundred meters or less up to several miles for low precision receivers, and potentially tens of miles for high precision receivers.
It appears that LightSquared expects that GPS manufacturers should “fix” their devices, in order to mitigate these interference issues, although unsurprisingly this is being resisted strongly by the GPS community, because the costs would be very significant. PRTM estimates that it will only cost 30 cents per device to fit filters to the “40M standalone GPS devices” made worldwide each year for a total of $12M. PRTM also assumes that no additional filters will be needed for the much larger number of GPS-enabled cellphones sold each year, despite Qualcomm telling the FCC in January 2011 that it plans to use a filter to prevent self-interference in L-band enabled cellphones, and had “not determined whether this filter provides sufficient protection to avoid interference to the GPS receiver from LTE base stations operating on the L band.”
In reality, whether or not cellphone manufacturers ultimately decide an additional filter is needed to protect their GPS receivers, the overall cost impact would be far, far greater than PRTM indicate. To take a directly analogous situation, LightSquared is paying Inmarsat $250M to fit filters to its L-band satellite terminals on up to 10K aircraft and perhaps 50K ships. If we assume these filters cost $30 rather than 30 cents each, then following PRTM’s calculations the cost of solving the problem would be less than $2M. However, Inmarsat expects to spend the vast majority of the $250M it is receiving on actually fixing the problem, and the filters themselves are less than 1% of the total cost. Instead, the bulk of the expenditure will go on securing approvals (including from safety authorities) for replacement equipment, then going out and fitting this equipment on ships and aircraft.
Across the GPS industry the same considerations would apply – dramatically increased costs for testing, safety approvals, retrofits of existing equipment, etc. not to mention the markups that would apply to the filter component costs as they flow through to an increased total cost of the devices sold. Many of these costs would be concentrated in lower volume and safety critical applications such as the aeronautical market, and if some GPS users experienced a permanent loss of accuracy, then there could be additional indirect costs to consumers (e.g. reduced crop yields leading to higher food costs). Just to give one example, the National Association of Wheat Growers indicated that its members have invested $3B in GPS equipment for precision farming, in order to increase the productivity and efficiency of farm processes.
Thus it is more credible to look at the total cost impact on manufacturers and consumers as being of order $1B+ per year over the next decade, as tens of billions of dollars of equipment needs to be upgraded or replaced. As in the Inmarsat situation, PRTM’s estimate of the filter hardware costs (for what was in any case only a subset of the overall GPS equipment market) likely represents no more than 1% of the total bill. Given that such a large cost impact might well outweigh the value of freeing up additional L-band spectrum, it would be very interesting to see a detailed cost-benefit analysis of these issues, so that economic rationality can play some part in the ultimate decision.
Nevertheless, despite the significant cost impact on the GPS industry and end users, the FCC might still decide to impose “receiver standards” on future GPS devices. However, it would still take considerable time before these standards became effective. For example, the FCC could easily take 12-18 months (or longer) to decide on what receiver standards to mandate, and then it might require that all new GPS receivers manufactured after say the end of 2014 were capable of withstanding potential interference. Then there would need to be several more years for older devices to be replaced or updated, with a sunset date perhaps as late as the end of 2018 or 2019 (or beyond).
Assuming that this is the path the FCC decides to follow, it is still unclear what spectrum LightSquared would then be able to use for its network in the near term. The Phase 0 spectrum which is currently available to LightSquared has its downlink between 1550 and 1555MHz, which is the channel closest to the GPS band, and so its use would likely be heavily restricted or completely prohibited until GPS receiver standards came into force. LightSquared gains access to an additional 2x5MHz channel (the Phase 1A spectrum) sometime between February and November 2012, depending on how quickly this is cleared by Inmarsat. This channel is at the bottom end of the band (1526-1531MHz downlink) and so is the least likely to interfere with GPS. LightSquared then adds 2x10MHz of additional spectrum (Phase 2) with downlinks at 1531-1536MHz and 1545-1550MHz at the end of July 2013. However, it is uncertain whether and under what conditions the use of the 1545-1550MHz band would be permitted before any receiver standards came into force.
This timeline indicates that (if Channel 1 is usable) LightSquared should have access to 2x5MHz of spectrum sometime in 2012 and at least 2x10MHz of spectrum from the end of July 2013. However, it is far from clear (even assuming LightSquared has a network contractor in place) how the company expects to offer service by the end of 2011.
More broadly, the outcome of the GPS interference testing and FCC deliberations also remains in doubt. PRTM characterized this as “a situation where the neighbor [GPS] built the fence too far over the property line and may not have realised it at the time. Now the other neighbor wants to build a pool and there is not enough space. So the question is: who has to pay to move the fence?”. However, I look at the analogy somewhat differently – regardless of where the fence is, if you have protected butterflies [defense and aviation systems] living at the bottom of both gardens, will the government let you build a pool at all?
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03.28.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 8:23 am by timfarrar
In recent days, the LightSquared PR machine has moved into ever higher gear, in an attempt to persuade Sprint that it should choose LightSquared over Clearwire. Given the frantic pace of announcements, I think that Sprint’s decision may come as soon as the next few weeks, in an attempt to disrupt the AT&T/T-Mobile merger, which was partly justified by citing the competition from Clearwire and LightSquared. However, it does feel a bit like something out of Monty Python, when LightSquared claim that the disappearance of their supposed deals with Sprint and MetroPCS is just a flesh wound.
Now we have another Monty Python scene coming into view, as the House of Representative’s Committee on Energy and Commerce moves ahead with an investigation into the FCC and their “management of commercial spectrum”. As Dave Burstein reports, there are clearly some senior staff at the FCC who share my concern about whether a “spectrum crisis” is being “manufactured”.
However, with not only the FCC Chairman’s reputation, but also the fate of the AT&T/T-Mobile merger, riding on the perpetuation of a “spectrum crisis” (not to mention billions of dollars of projected future budget revenues), it seems likely that the investigation will be more focused on political point scoring than on a serious debate about future spectrum demand.
Nevertheless, if Sprint’s upcoming decision leads to the failure of either LightSquared or Clearwire, then that really ought to prompt some hard questions about whether there actually is a spectrum crisis. Let’s hope that Congress’s investigators have more analytical resources at their disposal than “fear, surprise, ruthless efficiency…and nice red uniforms”.
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03.25.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:30 am by timfarrar
It looks to me ever more likely in the wake of the AT&T/T-Mobile deal that Sprint will soon have to choose to back either Clearwire or LightSquared, but not both. LightSquared is doing its best to talk up the idea that Clearwire’s customers are going to jump ship, having announced a deal with Best Buy with a “trial” of its LTE service starting in the first quarter of 2012, and now suggesting that it is “in discussions” with Time Warner Cable for a major deal, despite that company’s “not very impressive” results with Clearwire and TWC stating that it is “trying to spend not too much money while we are [exploring whether packaging wireless data with our wireline offerings is something that consumers want]“.
Neither of the deals that LightSquared has announced this week will generate very much revenue (I estimate a few tens of millions of dollars per year at best from Leap and rather less than that from Best Buy) and so most people are looking towards a LightSquared network sharing agreement with Sprint to show how LightSquared will move forward. This is hardly surprising given that the previous MoU with Nokia Siemens Networks appears to have fallen apart, and there is still no news about a partnership with MetroPCS on the 2GHz MSS spectrum.
Before the AT&T/T-Mobile deal it seemed that Sprint would try and have it both ways, continuing to work with Clearwire, and hoping that a spectrum sale or investment from T-Mobile would solve Clearwire’s funding challenges, while signing a network sharing agreement with LightSquared to offset some of its network upgrade costs and allow it to play Clearwire off against LightSquared when it came to negotiating wholesale bandwidth pricing.
However, it now looks more likely that Sprint will have to choose between Clearwire and LightSquared, because the two companies are competing for the same diminished pool of potential deals, and as Strategy Analytics asserts “there are probably too many 4G wholesale networks going after too few large wholesale customers”.
Despite the problems that Clearwire is facing, it has spent at least $5B so far on rolling out a network, mostly using other people’s money, and has a commercial network covering 120M people with capacity that can be sold today. From that perspective alone, it would be much less of a risk for Sprint to choose Clearwire over LightSquared. As Walter Piecyk of BTIG put it with regard to the “talks” between LightSquared and TWC: “Signing a roaming deal with LightSquared is kind of like planning a trip that goes over the bridge to nowhere. There is currently no network to use, there are material interference issues to resolve and then there is the small detail of coming up with $14 billion of cash. Good luck.”
Given these challenges, a decision by Sprint that provided LightSquared with a path to move forward would cast its already difficult relationship with Clearwire in an even more negative light. Similarly, if Sprint decides to back Clearwire as its primary provider of 4G service, it is hard to see why Sprint would expose itself to having to put up even more investment if Clearwire’s future revenue growth is impacted by competition from LightSquared. Given that AT&T has used the availability of both Clearwire and LightSquared’s networks to support its assertion that the mobile broadband market is highly competitive, the AT&T/T-Mobile merger might also be less likely to be approved, if one or other of Clearwire and LightSquared was to fail in the near term. As a result, I think that whichever choice Sprint makes could be fatal for the company it leaves on the sidelines, and ironically Sprint might even benefit from that outcome.
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03.20.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 4:39 pm by timfarrar
There are known knowns; there are things we know we know.
We also know there are known unknowns;
that is to say we know there are some things we do not know.
But there are also unknown unknowns – the ones we don’t know we don’t know.
As Donald Rumsfeld’s famous speech pointed out, often the most important issues are not the known unknowns, but the unknown unknowns. There are many known unknowns in LightSquared’s plan, such as the eventual impact of GPS interference, and where they will find funding for the network buildout.
However, the ultimate outcome may in fact be dictated by things we didn’t know we didn’t know, like the negotiations that resulted in today’s deal for AT&T to buy T-Mobile. Although some observers are suggesting this would be bad for LightSquared, in fact I think its much better for them than the alternative, of Sprint buying T-Mobile, which would hardly have left much room for a new entrant 4G network. In addition, my understanding is that discussions between LightSquared and T-Mobile have not been particularly active for quite a long time.
Although the AT&T/T-Mobile deal will undoubtedly overshadow this week’s CTIA conference, it will force Sprint to respond in some way fairly soon. Sprint obviously will be in a better negotiating position vs both Clearwire and LightSquared, but if those negotiations are already at an advanced stage, as most people assume, the outcome may not change too much.
From my point of view, one of the most interesting facts to come out of the AT&T announcement is that AT&T’s expectations are for mobile data growth of 8 to 10 times between 2010 and 2015, very similar to (though slightly lower than) T-Mobile’s January 2011 projection of 60% data growth per year from 2010 to 2014. Though AT&T trumpets this statistic as evidence of the growing demand for spectrum, when two of the biggest carriers agree that growth will be far slower than the FCC’s October 2010 spectrum demand model (which was already subject to significant errors), it certainly demonstrates how out of touch the FCC Chairman was this week, when he highlighted Cisco’s projection of “a nearly 60X increase [in data traffic] between 2009 and 2015″ as evidence that “the looming spectrum shortage is real”.
In the end, as Secretary Rumsfeld acknowledged, political decisions are made on the basis of incomplete and sometimes even incorrect evidence. To date, the FCC Chairman’s firm belief in a “spectrum crunch” has benefited LightSquared substantially, even if the reality is more likely something very different. However, as Secretary Rumsfeld found out, if momentous decisions are based on a faulty hypothesis, there will usually be a pretty significant backlash once the truth is revealed.
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03.18.11
Posted in ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 12:58 pm by timfarrar
On Wednesday, the FCC Chairman gave a speech at the Mobile Future Forum promoting his plan to hold incentive auctions of spectrum “voluntarily contributed by current licensees like TV broadcasters or mobile satellite operators, who would in return receive a portion of the proceeds of the auction”. This comes at an awkward time in the debate over MSS spectrum, given that DBSD has just been sold and a resolution of the TerreStar bankruptcy is still to come.
With Harbinger’s bid for DBSD, many observers had assumed that 2GHz spectrum holders would be able to secure waivers of the ATC obligations just as LightSquared did, despite the FCC expressing its intention in last July’s NPRM to secure “appropriate compensation for the step up in value” generated by converting the 2GHz band to terrestrial spectrum. As a result, this injection of additional uncertainty can’t be good news for TerreStar’s investors as they seek bids for the company’s assets.
The FCC Chairman’s intention to treat 2GHz differently from L-band (apparently on the basis that L-band spectrum is “worse” than 2GHz because it will take a substantial amount of time and money to resolve the interleaving and interference issues) also draws more attention to the ongoing debate over the LightSquared waiver.
Earlier this week it was suggested to me by an Obama Administration official that the FCC’s actions in granting the waiver may have contravened the intent of the President’s spectrum policy, as laid out in a June 2010 memorandum. This Memorandum states the following:
Section 1. The Secretary of Commerce, working through the National Telecommunications and Information Administration (NTIA), shall:
(a) collaborate with the Federal Communications Commission (FCC) to make available a total of 500 MHz of Federal and nonfederal spectrum over the next 10 years, suitable for both mobile and fixed wireless broadband use. The spectrum must be available to be licensed by the FCC for exclusive use or made available for shared access by commercial and Government users in order to enable licensed or unlicensed wireless broadband technologies to be deployed;
(b) collaborate with the FCC to complete by October 1, 2010, a specific Plan and Timetable for identifying and making available 500 MHz of spectrum as described in subsection (a) of this section. For purposes of successfully implementing any repurposing of existing spectrum in accordance with subsection (a) of this section, the Plan and Timetable must take into account the need to ensure no loss of critical existing and planned Federal, State, local, and tribal government capabilities, the international implications, and the need for appropriate enforcement mechanisms and authorities;
Specifically, it was suggested to me that the FCC did not “take into account the need to ensure no loss of critical existing and planned Federal, State, local, and tribal government capabilities” with respect to GPS interference, because the waiver was granted before the issue had been fully addressed. This dispute appears to highlight an ongoing debate within the US government about how to balance the conflicting objectives of protecting GPS while increasing the availability of broadband spectrum, which has seen at least one senior officer speaking out against LightSquared. As a result, it will be interesting to see how the political debate evolves, in light of the ever-intensifying lobbying campaign from the GPS industry.
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03.16.11
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum at 7:20 pm by timfarrar
Back in the 1990s, the oft-repeated mantra from proponents of the Iridium, Globalstar and ICO projects, when asked where they would find subscribers and investors, was “build it and they will come“. Unfortunately, this Field of Dreams approach didn’t quite work out, when between them these projects lost over $12B of investors’ money.
It now looks like Phil Falcone may end up playing the role of another character from the film, and an even better known resident of Chisholm, Minnesota, Archibald “Moonlight” Graham, whose claim to fame is that he never managed to get a chance to bat in his only appearance in Major League Baseball.
At Satellite 2011 today, the consensus of industry observers and regulatory advisers alike was that GPS interference issues are likely to render much of LightSquared’s L-band spectrum unusable for years to come, as I noted last night. As a result, it is very hard to see where we go from here in terms of LightSquared’s network buildout, even if the plan was fundable.
UPDATE: LightSquared appears to be hinting that it plans to announce a network sharing deal with Sprint next week at CTIA. Though this would be an interesting development, it is a far cry from the planned deal with MetroPCS, which could have potentially ensured an ATC buildout in the 2GHz band. LightSquared would still have to raise the money to fund the buildout, and this will still cost billions of dollars, not least because Sprint only has the right to deploy majority owned spectrum (such as from Clearwire) on its leased towers (unless new agreements are struck with the tower owners). If GPS interference issues render much of LightSquared’s spectrum unusable, it will also be much harder to offer adequate security for any new fundraising.
After Harbinger’s unsuccessful attempt to gain control of DBSD, it may now prove difficult if not impossible to access the 2GHz spectrum. With MetroPCS apparently also unwilling to publicly announce its partnership with Harbinger, it appears more plausible that MetroPCS would decide to team up with DISH than to continue the pursuit of TerreStar in conjunction with Harbinger. As a result, it seems ever more probable that there may never be a LightSquared terrestrial network, and Mr. Falcone may have lost his chance to bat in the major league of mobile operators.
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03.15.11
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 8:24 pm by timfarrar
Yesterday at Satellite 2011, Harbinger’s bankers at UBS expressed enormous confidence that LightSquared was “ahead of the pack” in securing partners and in its future prospects. Given the ongoing auction for DBSD, I was not alone in finding that confidence somewhat surprising. However, the document filed by DBSD this morning summarizing the status and results of the marketing process helps to explain why that was the case. MetroPCS (referred to as the Alternative Bidder) had filed a tentative bid last Thursday which was “contingent on the completion of additional due diligence and securing sufficient financing” (because it had been unable to reach an agreement with Harbinger and Solus). This was the point at which LightSquared were forced to announce their deal with Open Range instead of the intended partnership with MetroPCS. However, on Sunday March 13, MetroPCS reached an agreement with Harbinger and Solus to jointly fund the bid, allowing the three companies to make a definitive offer ultimately amounting to $1.475B. This supposed “knock-out” bid was a major factor in allowing UBS to travel to Washington DC on Monday and advertise their confidence in LightSquared.
Unfortunately for Harbinger, late last night DISH made a higher bid of $1.485B for DBSD and secured the support of parent company ICO Global, knocking Harbinger out of the running (although there remains the remote possibility of a further bid). As a result, the plans of LightSquared are now subject to considerable confusion – will it focus on the L-band or will it instead bid for TerreStar?
As I noted last week, there are acknowledged problems with GPS interference in the L-band, which is apparently what forced Harbinger to bid for DBSD. I’m now told that this interference issue may well render LightSquared’s current L-band spectrum (as available under the Phase 1 agreement with Inmarsat) largely unusable in a terrestrial network for many years to come, until filters are fitted as a matter of course to GPS devices (assuming the FCC decides to mandate this). In addition, LightSquared’s Phase 2 L-band spectrum (leased from Inmarsat), which may have less interference problems, will not be available until July 2013. However, TerreStar’s spectrum also has its problems, not least the potential need to negotiate an agreement with DISH as the owner of DBSD for a joint approach to utilize the 2GHz spectrum.
UPDATE: As part of its March 15 GPS Working Group documentation, LightSquared has published full details of its terrestrial spectrum band plans. The Phase 0 spectrum (1 paired 5MHz channel) has its downlink at 1550.2-1555.2MHz. The Phase 1A plan adds another channel with a downlink at 1526.3-1531.2MHz and the Phase 2 plan extends both channels to 2x10MHz, with downlinks at 1526-1536MHz and 1545.2-1555.2MHz. As such, though LightSquared is likely unable to use the Phase 0 spectrum, it might be able to use the second (lower) channel under the Phase 1A plan without causing substantial interference to GPS. The Phase 1A spectrum is expected to be available in February 2012, although under the original Cooperation Agreement a “reasonable delay” of up to 9 months could be added to this date. Whether this timeline for availability is sufficient to support a buildout is unclear.
In the near term, what may overshadow these issues is the status of the $586M loan that LightSquared secured from UBS and JP Morgan in mid February. At the time it was indicated that this loan would bring LightSquared’s available cash up to “about $1 billion”, something that is very important in enabling LightSquared not just to go forward with its planned network buildout, but also to keep paying Inmarsat for rebanding of the L-band spectrum. I had assumed that much of this loan would be spent on the DBSD bid, otherwise it is hard to see why LightSquared would access money at this stage when only a few days before LightSquared had indicated that it was “not going to raise more [money] in the short term”).
The question now is whether this loan has been drawn down and whether LightSquared will be able to continue to spend the money on the L-band rebanding and future network buildout, in view of the challenges the company may face in utilizing its L-band spectrum in the near term. If there are any conditions under which the loan could be recalled, then UBS will have to decide whether its confidence in LightSquared still remains as high as on Monday, or if its exposure is now of more concern. With LightSquared’s current cash burn rate somewhere in excess of $100M per quarter (excluding any terrestrial network buildout costs), this could significantly impact how much time LightSquared has available to secure a partnership.
Next week, LightSquared has indicated it plans to announce “significant news” at CTIA. Will this give some indication of where the company goes from here? Is there a deal with Sprint, T-Mobile or some other partner to announce? Will further disclosure of a partnership with MetroPCS take place, or was that deal limited to a potential 2GHz venture? Many questions remain unanswered, but LightSquared will need to start providing some answers very soon, if it is to move forward with its plans, and meet its promises to the FCC.
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