06.28.10
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 1:32 pm by timfarrar
The President has now announced his support for the proposal set out in the FCC’s National Broadband Plan (NBP) to free up 500MHz of spectrum for wireless broadband over the next decade. However, even though “Our nation’s ability to lead the world in innovation and technology is threatened by the lack of sufficient spectrum for wireless broadband applications and services” according to the FCC, it doesn’t necessarily mean that spectrum will prove to be a good investment over the next few years. (In this analysis, we’re looking at the opportunity for financial investors, as opposed to cellular operators – just like in the housing market, if you intend to use your spectrum, then that’s a different proposition from planning to flip it to someone else).
Indeed it is highly desirable from the FCC’s point of view that spectrum should become cheaper rather than more expensive, because that will enable more competition in the wireless market and result in lower prices for consumers. In the absence of lower prices for spectrum, it is likely that some cellular operators will be shut out entirely from 4G, or will be forced to merge with competitors in order to combine their spectrum holdings – not the outcome that the FCC wants to see. The FCC also doesn’t want to reward speculators – it would much prefer spectrum to be put to use, rather than see financial investors lock it up with a view to profiting from higher prices in the future. Although some might argue that the FCC also needs to raise money from auctions (not least to fund the buildout of public safety networks), it is far from clear that such motivations will weigh heavily in the FCC’s decisions (even if some members of Congress disagree). Certainly the concept of maximizing the proceeds of future auctions was not emphasized in the NBP.
From a historical perspective, despite this apparent crisis, spectrum prices in the US (on a per MHzPOP basis) are actually far lower than a decade ago. This is entirely logical: if it now takes 50MHz+ of spectrum to support $30 of monthly data services, whereas ten years ago operators required only 20MHz of spectrum to provide $50 of monthly voice services, then cellular operators simply can’t produce the same ROI from each MHz of spectrum as they did in the past.
Just the objective of freeing up 500MHz of spectrum (almost doubling the amount currently available for terrestrial cellular service) alone is likely to put a damper on spectrum prices. In recent months, we have also seen the FCC moving rapidly to finalize rules to enable use of 25MHz of WCS spectrum, and formulate policies to ensure that 90MHz of MSS-ATC spectrum is put to use. In addition, the FCC may also decide to limit the amount of additional spectrum that AT&T and Verizon (who accounted for the vast majority of spending during the 700MHz auction in 2008) can acquire in the future.
In my view, all of these developments point to lower spectrum prices in the next few years. In the short term, prices will be depressed further by the glut of spectrum owners seeking to monetize their holdings at the moment: Harbinger, Clearwire, NextWave and other MSS operators, to name just a few. This comes at a time when there is a relative lack of buyers, with most analysts hard pressed to name anyone other than T-Mobile that is an obvious partner for these companies. Investors who acquired undervalued spectrum assets a few years ago (particularly if that was prior to recent rule changes) may be OK, but new investors will need to be more cautious about the price they pay for these assets.
In summary, even if there is considerable long term demand for spectrum, it is a fallacy to equate this with increasing prices. In that regard, spectrum is like oil: you know there will be more demand in the future, but that tells you nothing about how the price will move in the next year or two. The short term price (and indeed the price in auctions) is determined by the balance of demand and supply today. That alone is a negative sign for investors in spectrum assets. However, when the FCC (unlike OPEC) would also prefer to see lower prices for spectrum, then it certainly looks like a risky bet to assume that prices will go higher anytime soon.
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06.21.10
Posted in Globalstar, ICO/DBSD, Inmarsat, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 2:36 pm by timfarrar
On Friday, the FCC’s Spectrum Task Force announced a “plan to increase value, utilization, and investment in mobile satellite service (MSS) bands”, beginning with a Notice of Proposed Rule Making (NPRM) which they hope to approve at the Commission meeting scheduled for July 15.
Although the announcement itself referred to the whole 90MHz of MSS spectrum identified in the National Broadband Plan (NBP) as suitable for terrestrial broadband, the focus of the discussion at Friday’s press conference appeared to be around the 2GHz (S-band) spectrum. Indeed the FCC highlighted that this spectrum, which is held by DBSD and TerreStar, is “right in the neighborhood of both the AWS spectrum and the PCS spectrum”. In particular, the FCC indicated that it would propose changing the table of allocation for the 2GHz spectrum, to allow primary terrestrial use (without ATC), and then enable secondary leasing for all three MSS spectrum bands. These rules would enable secondary leasing to begin “relatively soon”, if the FCC agreed to the proposal of the Spectrum Task Force.
According to Communications Daily, this proposal might include “charges”, presumably as “consideration for the step-up in the value of the affected spectrum” (as proposed in the NBP), but would avoid some of the delays associated with an incentive auction (which was one of the other options suggested in the NBP). Of course spectrum leasing for purely terrestrial use (as would then be possible in the 2GHz band) would be rather more straightforward than leasing under the current set of ATC restrictions, but the level of any FCC “charges” (and perhaps other conditions on terrestrial buildout or provision of satellite services) would dictate how much value could be realized by the existing spectrum holders.
What is particularly interesting is that this NPRM is being issued so quickly, when the Credit Suisse research conference call three weeks ago indicated that it was not expected until September. In addition, the NBP suggested that an S-band (2GHz) Order would not be expected until 2011 (as opposed to 2010 for the L-band and Big LEO bands), at least partly because decisions might be impacted by the outcome of the adjacent AWS-3 band proceeding.
Perhaps the reason for this change in timing is hinted at by the first line in the FCC’s announcement: the need to “increase…investment in MSS bands”. Certainly both Echostar and TerreStar were well prepared with immediate comments on the announcement (with Echostar also noting that the proposed change would “help spur investment”), and TerreStar desperately needs new investment in the very near future. It looks like the outcome of the FCC meeting in July (which according to Friday’s press conference is “still in flux”) might therefore prove critical to TerreStar’s future.
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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.
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03.30.10
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.
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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.
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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.
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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.
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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.
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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.
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12.07.09
Posted in ICO/DBSD, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 10:41 am by timfarrar
On Friday Dec 4 we attended an FCC discussion of the National Broadband Plan here in Menlo Park, at which Carlos Kirjner and Blair Levin presented on various issues being addressed in development of the National Broadband Plan. The most interesting part of the presentation was the assertion that “at least 150MHz” of TV spectrum could be freed up by relocating over the air TV broadcasters to a smaller portion of the UHF band “while keeping all major channels on the air”.
Its been widely discussed how the broadcasters might be incentivized to move, perhaps by offering them a share of the future auction proceeds, so at the end of the presentation I asked if a similar arrangement would be available for other spectrum bands, such as MSS. Blair Levin confirmed that other bands, including MSS-ATC spectrum, were also under review and that historic band allocations may no longer be optimal to meet future wireless spectrum demand. As part of the FCC’s review of Harbinger’s proposed purchase of SkyTerra, the FCC has also asked some very detailed questions about SkyTerra’s progress towards an ATC deal, and the discussions that they have had with different parties.
Will the National Broadband Plan provide an alternative way for MSS operators such as SkyTerra, ICO/DBSD and TerreStar to monetize their spectrum, as it does not look like any of these operators are going to move forward with ATC deployment in the near future? Globalstar’s ATC lease agreement with Open Range is seeing more progress, but is limited to a few million rural consumers (and the Open Range terrestrial rollout is being supported by USDA loan guarantees).
Certainly in the 2GHz band (unlike the L-band) there are no existing satellite services which would prevent operators returning their spectrum to the FCC for re-auction. The National Broadband Plan is due to be published in February 2010, so we will soon see whether the FCC is going to come up with a plan to make sure that MSS spectrum is put to use in terrestrial networks in a more timely manner.
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