05.14.09
Posted in Financials, ICO/DBSD, Inmarsat, Regulatory, Spectrum, TerreStar at 2:07 pm by timfarrar
The European Commission has announced the result of the S-band MSS selection process: as expected the two winners are Solaris Mobile and Inmarsat, with ICO and TerreStar’s applications rejected.
In response to the announcement, Inmarsat said it was “delighted to be the recipient” and “will look to pursue the commercial partnerships necessary to ensure that the returns from the required investment in our S-band programme will generate acceptable returns on capital without undue risks or uncertainties”.
However, it may not have much time to establish these partnerships, since the EC has stated that “within 30 working days of the publication of the list of selected applicants they shall inform the Commission in case they do not intend to use the radio frequencies”. If applicants decide to move forward (i.e. do not return the license) then they “will be bound by the commitments that they have undertaken, including commitments made concerning consumer and competitive benefits and geographic coverage” and all new systems must have “development and deployment completed” by May 2011 “at the latest”. A two year deadline for deployment is extremely tight, and Inmarsat would have to start spending serious money in the very near future (probably close to $100M in the next 12 months and $300M over the next two years) to complete and launch a satellite in this timeframe.
It will be very interesting to see if Inmarsat can find partners to come up with this amount of money (or enter into some alternative form of capacity purchase contracts) in the next 30 days. Given that Solaris already has a satellite in orbit (albeit with more limited coverage) and has not yet announced any meaningful capacity commitments, it would be quite a surprise if Inmarsat was successful, especially in the midst of an economic downturn.
It remains unclear what sanctions the EC can impose on operators who fail to live up to their “commitments” and ultimately do not complete an S-band satellite on the promised schedule. We would have thought it unlikely that fines or other monetary penalties would be imposed, but coming a day after Intel was fined more than 1 billion Euros by the EC’s Competition Directorate, this may not be a good time to get on the wrong side of the Commission.
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03.12.09
Posted in ICO/DBSD, Inmarsat, Regulatory, Spectrum, TerreStar at 1:43 pm by timfarrar
Although the European S-band spectrum allocation process is well underway, its looking increasingly possible that there might never be more than one satellite system actually built to use this spectrum, namely the Solaris payload to be launched on Eutelsat W2A later this year. Amongst the other three entrants to the spectrum allocation process, ICO and TerreStar’s financial situation already makes it difficult to see them being able to fund construction and launch of new European satellites, although ICO maintains its legacy claim to the spectrum (by virtue of the MEO satellite launched in 2001), and has vigorously protested Ofcom’s planned cancellation of its registration in the ITU’s Master Frequency Register.
On Inmarsat’s results call today, the company was explicit about its intention not to “put its balance sheet at risk” to build its proposed EuropaSat S-band satellite, and when the CEO was asked about whether he would adopt a “build it and they will come” approach, he replied “absolutely not”. Inmarsat instead plans to seek external investors to fund the project, and ultimately to spin it off as a separate company. The contrast between Inmarsat’s description of its Alphasat project as bringing more capacity in the EMEA region, more spectrum and more redundancy to support future growth, and EuropaSat as a “non-core” project, was particularly striking.
While Inmarsat highlighted that EuropaSat could have interesting prospects in satellite radio as well as mobile TV, Ondas (which now looks to be the most likely vehicle for satellite radio development in Europe) has been growing closer to Solaris in recent months. This comes despite SES’s earlier skepticism about the prospects for satellite radio in Europe, and presumably reflects the very dim outlook for satellite-delivered mobile TV in Europe and elsewhere. Its therefore far from clear where Inmarsat might find the partners needed to fund EuropaSat, especially in such difficult economic times, and we believe it is now plausible (and perhaps even likely) that even if Inmarsat is awarded a license by the EU later this year, the EuropaSat satellite may never be built.
Ironically, the EU’s allocation rules don’t appear to envisage such an outcome, focusing instead on how to resolve a spectrum shortage and restricting any one operator to at most half of the 2x30MHz of spectrum available. In these circumstances it is quite possible that some of the spectrum might eventually end up being reallocated to terrestrial 3G networks instead of satellite services, as happened in North America back in 2003.
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01.21.09
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Regulatory, Spectrum, TerreStar at 9:46 am by timfarrar
Last week, the FCC awarded ICO its ATC license, with no requirement to enter into a ground spare contract at this stage. Indeed ICO will only have to demonstrate 30 days before commencing ATC service that “firm arrangements are in place to meet the spare satellite requirement” within 1 year of service initiation. Of course, since a satellite would normally take around 2 years to construct, ICO would have to enter into a ground spare contract well before that 30 day notice period. However, ICO has gained considerably more flexibility to keep its expenditures to a minimum, while pursuing resolution of its litigation with Boeing and waiting for a more favorable economic climate in which to launch commercial service.
With this ruling, along with Globalstar’s ATC license grant last year, the FCC has shown a desire to be flexible in its interpretation of the ATC rules, so as to ensure that ATC deployments do eventually take place. Arguably, this flexibility has advantaged operators such as ICO and Globalstar, over TerreStar and Skyterra (formerly MSV), who have committed to considerably greater capital expenditure, based at least to some degree on a more cautious interpretation of the ATC requirements. Most notably, TerreStar is already well advanced with construction of its ground spare satellite, although we have heard rumors that work may have paused in anticipation of the ICO ruling, and (unless TerreStar gains a European license in the near future and decides to use the satellite there) we expect that construction will soon be formally suspended to save money, on the assumption that this will not impact TerreStar’s pending ATC application.
A future question for the FCC with regard to ATC “flexibility” may well relate to what level of satellite performance is needed to justify that an ATC service is truly “ancillary”. TerreStar and Skyterra have built very large and powerful (and expensive) satellites, in order to deliver voice and data connectivity to “standard” mobile devices without external antennas. ICO and Globalstar’s satellites are rather less capable (and cheaper), but if they are not required to deliver fully reliable handheld satellite voice services, then these satellites could also operate with “standard” mobile devices. For example, if the only test required is to complete a call from a handset on a tripod in an open field, with no head blockage or obstruction from trees etc, then a far less expensive satellite is required than if link margin is needed to overcome these obstructions and the call is made or received by a real person walking around with the phone.
Given that many hundreds of millions of dollars of satellite construction costs are at stake, it will be very interesting to see how the FCC ultimately decides this issue and therefore who has made the right call with their satellite design.
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