10.14.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum, Sprint at 10:51 am by timfarrar
As others have noted, in order to get a 700MHz interoperability deal, which will largely benefit Verizon and AT&T (as AT&T are now the only plausible national user of the A block spectrum and are likely to acquire both Verizon and Leap’s spectrum holdings in this band), DISH has secured a pretty good deal in Washington from interim FCC Chairman Clyburn: in exchange for DISH agreeing to low power use of the 700MHz E block (and bidding $0.50 per MHzPOP in the H block auction), DISH appears set to obtain an option to reband its AWS-4 uplinks to downlinks and an extension of the AWS-4 buildout milestones.
UPDATE (11/13): T-Mobile is raising $2B for spectrum purchases and is now rumored to be contemplating a bid for Verizon’s 700MHz A block spectrum. This would only give T-Mobile a 5x5MHz LTE network, which would not add much capacity in urban areas, but if T-Mobile is seeking to improve its rural coverage then it would have to buy other A block licenses as well.
This gives DISH a significant advantage both in the upcoming LightSquared bankruptcy auction, where no-one really expects any alternative bidder to emerge for the L-band spectrum, because the FCC has all but guaranteed it will not propose the so-called spectrum “swap” that LightSquared has asked for: it’s understood that Ergen will simply drop the request when he buys LightSquared’s satellite assets, so there is no point in the FCC annoying those in Congress who would want to see the 1675-80MHz spectrum band auctioned instead.
More importantly, if DISH is given an option but not an obligation to reband the AWS-4 uplinks (DISH has asked for 30 months to decide, but I would expect the FCC to only allow 12-18 months at most), then it also has a huge advantage in the H-block auction, because if Sprint were to win the spectrum then DISH could hold up standardization of the band (and delay any ability for Sprint to use the H block to relieve capacity constraints in its PCS G block LTE network). After years of experience in being held hostage by Ergen, its therefore hardly surprising that the smart move for Sprint will be to let DISH have the H block at the reserve price. That will force DISH to drive the standardization efforts, and potentially even allow Sprint to put roadblocks in DISH’s way instead of vice versa.
UPDATE (11/13): Both T-Mobile and Sprint have now ruled out bidding for the H-block spectrum. So it seems that both have made the smart move by leaving Ergen to contemplate what to do with ~80MHz of spectrum and no partners.
Moreover, it will establish a low benchmark price for the rest of DISH’s spectrum holdings, well below the $1.00 per MHzPOP that many analysts have been touting recently, and Ergen will then have doubled his bets on spectrum to roughly $8B, when taking into account both the LightSquared and H-block spectrum, without any clear route to monetization. With AT&T focused on European expansion and Verizon encumbered by the debt from buying out Vodafone’s stake, Sprint could then hope to hold the whiphand in any partnership negotiations with DISH.
Indeed next year’s auctions of 70MHz of additional spectrum (AWS-3, 1695-1710MHz and J block) may further impact perceptions of spectrum value: a $0.50 per MHzPOP valuation will again be ample to cover the costs of clearance plus the $7B needed to fund FirstNet. That is the FCC’s key objective in the upcoming spectrum auctions, so it can limit AT&T and Verizon’s participation in the 2015 broadcast TV incentive auction and ensure that Sprint and T-Mobile gain sufficient low frequency spectrum to preserve a four player market after the next presidential election. Once no net revenues need to be raised from the incentive auction, then it won’t matter if AT&T and Verizon refuse to participate, as that would simply keep the price low for Sprint and T-Mobile (or ensure that not as much broadcast spectrum is cleared).
However, rather than negotiating with Sprint on their terms, I expect that Ergen will instead pursue a merger with DirecTV, as an alternative to any wireless partnership, and I still expect a commitment to build out a fixed wireless broadband network with rural coverage to be key to getting regulatory approval for such a deal. Nevertheless, if DirecTV doesn’t put as much value on DISH’s spectrum holdings as Ergen does, it may be difficult to reach agreement on the respective value of the two companies. As a result, while Ergen builds his tower of spectrum cards ever higher, it will be interesting to see whether investors stay confident that he can ultimately create substantial value from these holdings.
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09.23.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 9:34 am by timfarrar
Tomorrow’s hearing in the LightSquared bankruptcy case was supposed to be the showdown at which the judge would decide between LightSquared’s own proposed bidding procedures (which attempt to reject Ergen’s $2.2B bid for the company) and the alternative bidding procedures which have now been proposed jointly by the LP and Inc secured creditors (and would accept Ergen’s stalking horse bid). However, LightSquared has appointed an independent committee of its directors (including a new member, Donna Alderman, who fought with DISH over the resolution to the DBSD case) and this committee (whose independence is disputed by the LP creditors) has requested that the hearing be delayed until September 30.
Of course, no-one is taking seriously the alternative plan proposed by Harbinger, which would simply keep the existing debt in place (converting it to PIK interest) and allow Harbinger to stay in charge, but LightSquared’s plan would allow it to deem a non-cash bid, contingent on FCC approval, superior to DISH’s cash bid, which could potentially further delay a resolution of the case. In contrast, under the secured creditors plan, any competing bid must be non-conditional on FCC approval, making it hard to see how any strategic buyer could emerge – although since potential bidders have already had two months to make an offer, and none have done so, it is likely that no-one else other than Ergen is actually interested.
LightSquared spent last week groveling to the FCC, suggesting that “The current stalking horse bid might be the only one submitted, if the FCC does not make its decisions quickly, because the company’s assets cannot be fully valued until the Commission acts on the pending modification applications.” However, the FCC’s recent grand bargain with DISH and AT&T over the 700MHz A and E blocks, AWS-4 downlinks, and the PCS H block auction makes it pretty clear that the FCC would prefer DISH as a buyer of the LightSquared assets, so that just the L-band uplinks would be used, rather than Harbinger getting a spectrum “swap” (which in reality would represent another windfall and lead to more criticism in Congress).
Given Phil’s troubles with the SEC, its hardly surprising that Chairman Mignon Clyburn would now choose DISH over Harbinger. That’s in contrast to my post last year asking if Phil was finally right about something with his comment 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” (which prompted this response).
Harbinger’s attempt last month to sue the GPS industry for $1.9B also appears to have backfired, with LightSquared creditors pointing out that Harbinger was violating the bankruptcy exclusivity order by asserting claims of the estate. Moreover, this action, coming immediately after the FCC put LightSquared’s request for uplink approval on public notice, appeared likely to delay rather than expedite any regulatory approval from the FCC. Not only has Phil therefore caused further angst in the bankruptcy case, but I’m told that he is also struggling to find a credible plaintiffs firm to take the lawsuit forward, while the GPS industry have hired Boies Schiller to fight their side of the case. So perhaps now is the time to ask if Phil can get anything right?
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09.19.13
Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, Operators, Regulatory, Services, Spectrum at 9:32 am by timfarrar
Why didn’t Phil think of this first?
With MSS revenues in a bit of a funk this year, its not surprising that MSS operators are pursuing opportunities to attract consumers and expand the voice market outside the traditional verticals. We saw this first of all with Thuraya’s SatSleeve, announced at the Satellite 2013 conference in March. The SatSleeve connects via Bluetooth (and in the latest version WiFi) to an iPhone allowing the customer to use their iPhone contacts and touch screen interface. However, a key limitation is the need for compatibility of the sleeve with a particular phone form factor, and Thuraya has just launched a new version of the SatSleeve compatible with the slightly larger iPhone 5 handset rather than the original iPhone 4.
One way to overcome this handset compatibility issue is to use an external puck-like device, similar to a SPOT Connect or DeLorme inReach product, but offering voice and data capability in addition to simple messaging. This concept has been around for many years, and indeed was part of Craig McCaw’s new business plan when he bought ICO out of bankruptcy back in 2000: ICO told the FCC in its original ATC application in March 2001 that
“The use of already-permitted wireless technology such as Bluetooth or IEEE 802.11 could allow a whole range of consumer devices – standard terrestrial phones, PDAs, or laptop computers – to communicate with a satellite transceiver that houses the antennas, amplifiers, and other electronics unique and specific to the satellite link”.
Subscribers to my MSS research service heard 6 weeks ago about Iridium’s new handheld product, scheduled for launch at the end of the year, which is apparently exactly this puck-like device. It will be positioned to compete at the low end of the handheld market with a broadly comparable price to Thuraya’s SatSleeve (which was originally announced at $499 but is now selling for $599 to $799) and the Inmarsat and Globalstar handheld phones. I’m now told that Inmarsat is working on a similar device for release towards the end of next year, and meanwhile Globalstar has announced that it is “aiming to bring a $100 satellite device to market in 18 months time…to enter into a totally different market”.
I understand that Globalstar’s new device is likely to be the long-awaited two-way SPOT product, and may not be voice-capable like Iridium and Inmarsat’s new devices. It remains unclear whether the form factor will be a smartphone-connected puck (like SPOT Connect) or a standalone device: certainly the standalone device has sold much better for Globalstar to date, but equally well this might make it harder to expand beyond the current market of techie-focused backpackers and outdoorsy people (the vast majority of SPOT users are like me: 40-something relatively high income males with an interest in technology). Given the 18 month timetable stated by Globalstar, its also unclear whether this would be based on the new Hughes chipset or the current SPOT uplink plus a similar downlink channel, as the second generation ground segment upgrades are supposed to take about two more years to complete.
As Globalstar moves to raise its profile with investors, it seems the next stage will be a new round of fundraising (Globalstar noted in its 2013Q2 10-Q that “In June 2013, the Company entered into an agreement with Ericsson which deferred to September 1, 2013 or the close of a financing approximately $2.4 million in milestone payments scheduled under the contract”), presumably helping to reduce some of Thermo’s $85M backstop commitment (of which $40M had been provided by the end of July and $4.4M had been offset by receipts from termination of the 2009 share lending agreement). Indeed, it would be plausible for fundraising to go beyond this ~$35M level given the rise in Globalstar’s share price in the expectation of a positive outcome from the FCC, though it appears unlikely Globalstar will order more satellites anytime soon, given that the legal disputes with Thales are apparently still ongoing (Thales has “alleged that Thermo had failed to pay Thales $12,500,000 by December 31, 2012 as required by the Settlement Agreement“).
It seems Globalstar is highly confident that its NPRM will be issued by the time Chairman Clyburn leaves office, so it would be reasonable to suspect that this new financing is intended to take place in the next month or so, helping to cover payments of $20M+ due to Hughes between August 2013 and January 2014). Last week’s grand bargain over the 700MHz A&E blocks, DISH’s AWS-4 downlink waiver request and the H block auction, certainly indicates that I was too pessimistic in believing that Clyburn didn’t want to address spectrum issues and would leave these for Wheeler, and it would therefore now not be in the least bit surprising to see the Globalstar NPRM released at or around the time of the September FCC Open Meeting (when Clyburn will have what might be the last chance to trumpet her accomplishments as Chairman). Clyburn also appears less likely than Wheeler to pursue the “harm claim threshold” approach favored by the FCC’s TAC, which is good news for Globalstar in terms of how long it would take to issue an FCC order, although given that the FCC highlighted the speed with which it had moved to complete the DISH ruling last December (within 9 months of issuing the NPRM), it is still hard to imagine a final ruling on TLPS before early summer 2014.
So the key issues for Globalstar are likely to be how successfully it can build up its MSS business (note that the revenue projections given for the bank case in the new COFACE agreement generate just enough cash to cover debt, interest and capex payments through 2022 but little else) and more importantly whether Globalstar can find a partner to exploit its spectrum assets. We know about Amazon, but will there be other interest either from the cellular industry or (perhaps more plausibly) from non-traditional players? What are the best comparisons for spectrum valuation for TLPS and/or LTE authorization? I’ll be publishing my updated profile of Globalstar shortly and all of these issues will be discussed along with my revenue projections for the MSS business.
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09.12.13
Posted in Clearwire, DISH, Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 3:39 am by timfarrar
DISH’s submission to the FCC earlier this week, offering concessions on 700MHz E block power limits (thereby securing support from AT&T), and the prospects of a bid of up to $0.50/MHzPOP ($1.5B) for the PCS H block, in exchange for the option to use the 2000-2020MHz AWS-4 uplink band for downlink operation, confirms that DISH’s plan is to use LightSquared’s L-band spectrum for uplink operations. That would presumably be paired with the 2180-2200MHZ AWS-4 downlink, which would give DISH the opportunity to offer the 2000-2020MHz band as supplementary downlink for PCS operators. It also confirms that DISH’s two targets for a potential partnership are now AT&T and Sprint, since they will be the two main LTE operators in the PCS band, and strongly suggests that DISH no longer has any interest in buying T-Mobile (though a deal with DirecTV remains plausible in 2014).
Its important to remember that now it hasn’t got access to the Clearwire spectrum, DISH is essentially offering a partnership under which it would host AT&T or Sprint’s mobile spectrum (most likely in the WCS and BRS/EBS bands respectively) on its planned fixed broadband wireless network (which would use the AWS-4 downlink and L-band uplink for backhaul). In other words, DISH becomes a tower company, offering small cell hosting for as little as $100-$200 per cell per month, because DISH’s wireless broadband subscribers will be providing the site (on their rooftop satellite TV antenna) and the power for free.
If DISH secures auxiliary PCS downlink spectrum then it will also have an even more attractive set of additional spectrum to lease to AT&T or Sprint for their macrocell rollouts. That’s in addition to the 700MHz E block spectrum which AT&T desperately wants (and will feel even more pressure to secure, now it will be able to move forward with the rollout of the Qualcomm D/E block spectrum). Stating that DISH will bid for the H block also puts additional pressure on Sprint to come to a deal, which would substantially reduce the cost of SoftBank’s planned small cell rollout in the 2.5GHz BRS/EBS band in suburban and rural areas.
UPDATE (9/13): With the FCC confirming plans for a Jan 2014 H-block auction this afternoon, with DISH’s proposed reserve price of $0.50/MHzPOP, it seems near certain that DISH’s deal is on a fairly smooth path to being approved by mid December (30 days before the auction starts), so DISH should have clarity in time for the LightSquared auction. It is possible that this could lead to other subordinated debt/preferred holders attempting to push up the price DISH will have to pay, but it is also important to note that DISH will have other potential choices (such as the 1695-1710MHz block) for uplink spectrum and will have the option but not the obligation to switch the AWS-4 uplink band to downlinks. Thus the timetable this time around is likely to be highly favorable for DISH: it will know about the FCC before the LightSquared auction wraps up, which comes before the H block auction, which comes before the 1695-1710MHz auction.
However, one key consideration for DISH is whether it will be forced to pay lease fees to Inmarsat for the LightSquared spectrum, starting next April, which would be around $90M-$100M p.a. if LightSquared’s application for 20MHz of terrestrial uplink authorization is ultimately approved. (Note that DISH is certain to drop LightSquared’s request for a purported “swap” of downlink spectrum in the 1675-80MHz band, as it only wants the L-band uplink in the near term, and this is an obvious concession to offer to the FCC).
I believe that DISH is unwilling to pay Inmarsat anything material in cash while it is waiting for a terrestrial deal, and therefore needs to gain leverage over Inmarsat in the run up to the April 2014 deadline for payments to resume. To do that I understand that EchoStar’s Hughes subsidiary is working on a dual mode L/S-band satellite phone, and Ergen is considering a roaming agreement/partnership with Thuraya, enabling Thuraya to gain access to the North American market via the TerreStar and/or LightSquared satellites. Alternatively, in order to entice Inmarsat into a deal, DISH is prepared to enter into a European S-band joint venture, using the TerreStar-2 satellite to secure Inmarsat’s S-band license (of course if Inmarsat refuses then DISH could instead partner with Solaris Mobile, the Eutelsat/SES joint venture).
So it now looks like we are set for a tense few months of dealmaking in the MSS industry, and investors will have to wait and see whether Inmarsat is prepared to compromise over the LightSquared Cooperation Agreement. Of course, if Inmarsat refuses, and the Cooperation Agreement lapses, then Inmarsat could prevent any terrestrial use of the L-band spectrum by DISH. However, that might not go down too well with the FCC, if it is relying on DISH to bring the additional spectrum into use soon (and provide rural broadband competition to boot), so it is far from clear who has the most leverage here.
In addition, I’m told that Inmarsat signed the contract with Boeing on Tuesday for the fourth GX (backup) satellite, so it now will incur an extra $150M+ of capex in the next few years (assuming that this satellite remains a ground spare, which is not a foregone conclusion in the medium term).
UPDATE (9/13): Inmarsat also told potential customers this week not to expect global GX coverage until Q1 or Q2 of 2015.
That could be an awkward message for Inmarsat’s investors, who have bid up the company’s shares substantially in recent months, if Inmarsat not only has to spend more money on satellites, but is also facing the prospect of no more cash from the L-band spectrum, the possibility of investment to exploit the European S-band license (if it does partner with DISH) and perhaps even additional competition for its core MSS services (if Inmarsat rejects DISH’s offer).
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09.09.13
Posted in Aeronautical, DISH, Financials, Globalstar, Inmarsat, Iridium, LightSquared, Operators, Orbcomm, Regulatory, Spectrum at 3:12 am by timfarrar
That seems an appropriate title, as I head off to London and Paris this week, to hear MSS and other satellite operators talk about their future opportunities. I found it interesting to note that Euroconsult released their updated MSS market assessment a couple of weeks ago, cutting their projection of future wholesale revenue growth from 7% p.a. (in the previous version of their analysis) to 5% p.a. over the next 10 years, getting back much closer to my forecasts from a couple of years ago.
However, by my estimate, MSS wholesale service revenues only grew at 2% in 2011 and 3% in 2012 (not 5% as Euroconsult estimates, perhaps due to double counting of Orbcomm’s revenue growth from resale of Inmarsat and now Globalstar services) and the majority of this growth in 2012 came from Inmarsat’s price rises. While it originally looked like 2013 was shaping up to see a bit better growth, Iridium has reduced its guidance, Globalstar’s second quarter results were nothing to write home about and Inmarsat is again seeing a significant part of its modest revenue growth being driven by maritime price rises. So its now far from clear that we will get even to Euroconsult’s lowered 5% growth projection in the near term.
While spectrum is a wildcard that could provide incremental revenues for Globalstar (through a potential deal with Amazon) and Inmarsat (through a resumption of lease payments from LightSquared), progress here may not be as fast as expected. Globalstar’s hoped for NPRM is not on the tentative agenda for the FCC’s September Open Meeting, presumably meaning that although the NPRM has now been placed on circulation this issue may be left for incoming Chairman Wheeler to finalize. The recent application by Oceus Networks for an experimental license to test TLPS for DoD users also suggests that a partnership with Amazon is far from set in stone as the way Globalstar will be able to realize value from its spectrum assets.
In contrast, it looks increasingly like DISH will succeed in its bid to buy LightSquared’s satellite assets later this year, and DISH has agreed to assume the Inmarsat Cooperation Agreement as part of its stalking horse bid. But buying LightSquared is a sign that DISH is unlikely to move forward quickly with its entry into the wireless market, because it would take until late 2014 or beyond before the FCC could approve any change to downlink use for the 2000-2020MHz AWS-4 uplink band. At the moment it seems that interim FCC Chairman Clyburn doesn’t want to take a decision even on LightSquared’s uplink band (let alone address the purported “swap??? of downlink spectrum, which Ergen doesn’t want or need – leaving MAST Capital Management stuck holding a largely worthless lease of the 1670-75MHz spectrum band), because the FCC will not receive reply comments until September 23 (shortly before Clyburn relinquishes the chairmanship). So even if DISH buys the satellite assets, and drops the request to get hold of the 1675-80MHz band, reaching any resolution of the current regulatory issues in the L-band will undoubtedly be a lengthy process.
Charlie Ergen hinted on DISH’s Q2 call that he doesn’t anticipate simply continuing the Cooperation Agreement in its current form, so it would not be at all surprising to see a fight between DISH and Inmarsat over renegotiation of the Cooperation Agreement in the early part of 2014. One possible compromise could be in the form of a partnership between DISH and Inmarsat to use the TerreStar-2 satellite to preserve Inmarsat’s S-band license in Europe, in exchange for further postponement of any cash payments under the Cooperation Agreement.
Despite (or perhaps because of) the challenges that the MSS market faces, M&A continues apace. Recent agreements include Inmarsat’s sale of its energy sector assets to RigNet and Rockwell Collins’ acquisition of ARINC. I understand a number of additional notable transactions are in the works. Rumors persist that SITA has put OnAir up for sale (only six months after buying Airbus’s stake in the business) and Honeywell appears to be the most likely buyer, while Orbcomm continues its acquisition of satellite M2M service providers and may now be in negotiations to buy Comtech Mobile Datacom.
UPDATE: According to an OnAir spokesperson “SITA has no intention to sell OnAir to Honeywell or to anyone else and remains OnAir’s sole shareholder.”
It will be particularly interesting to see the valuation put on OnAir, given the recent disastrous public offerings of Gogo and Global Eagle/Row44, because if OnAir attracts a much lower valuation than Gogo and Row44 it could be a sign that SITA is pretty pessimistic about the future of the inflight connectivity market. That would be a surprise to many, because after all inflight connectivity is seen as one of the major areas for growth in the MSS market going forward, but at present making an operating profit, let alone a return on investment, is a pretty distant prospect for most if not all of the service providers. So if now is the time for SITA to get out, will this turn out be the age of wisdom for the sellers and the age of foolishness for the buyers, or the reverse?
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08.23.13
Posted in Globalstar, Operators, Regulatory, Spectrum at 11:33 am by timfarrar
So it seems like everyone has finally woken up to Amazon’s tests of Globalstar’s TLPS service that I wrote about in early July. Presumably “people with knowledge of the matter” are talking to the press now because Globalstar is trying to get an NPRM issued by interim FCC Chairman Clyburn, before she steps down in favor of Tom Wheeler, who may be more likely to opt for lengthier approval process (as I noted last month, he appears to favor using TLPS as the test case for a negotiated “harm claim threshold” approach).
Of course the longer that approvals take, the more chance that one or more ecosystems for alternative bands will emerge, and undermine the value of TLPS, so its hardly surprising that Amazon rivals such as Microsoft expressed their “concerns about interference to unlicensed uses in the 2.4GHz band” after Globalstar’s experimental license application gave details of the test locations, and the Bluetooth Special Interest Group has been pushing to delay any NPRM “until a full technical analysis of the impacts has been completed and the impact on the existing users of the ISM spectrum is understood”.
Some questions also remain about the compatibility of TLPS with services other than Bluetooth, particularly legacy BAS license holders, which caused the FCC to limit TLPS testing in Silicon Valley to lower power levels and indoor locations only (and has prompted Globalstar to conduct the latest round of testing in New Orleans where there is no legacy BAS usage, although there are some nearby Part 90 public safety users).
TV White Space spectrum is one possibility as a substitute for TLPS, but a more direct alternative appears to be the 3550-3650MHz spectrum, especially if the FCC follows the licensing approach proposed by AT&T and Google in a joint letter to the FCC on August 6, urging the Commission to move forward with allocation of the 3550-3650MHz for small cell deployments via a streamlined (i.e. low cost) auction, with any applicant allowed access to a secondary exclusive tier of spectrum if they commit to a “substantial service requirement???. So it is obviously extremely important, if Globalstar is to have any chance of realizing the $3B it has maintained that its spectrum is worth, that approvals are received quickly.
However, what Bloomberg’s article didn’t appear to have any clue about, is how Amazon might actually use the spectrum and generate enough value to justify paying Globalstar billions of dollars. In my view, the only realistic plan (as GigaOm notes) is a dedicated WiFi deployment, allowing its own devices (such as Kindles) to use a very extensive small cell network instead of relying on cellular networks for data delivery.
To do that Amazon has to get a device into a huge number of homes, and hope that the higher power and longer range of TLPS (compared to unlicensed WiFi) provides widespread coverage in urban areas. The ubiquitous availability of WiFi access points is the theory behind FON, and its notable that in the UK, BT (which has provided FON service through all of its in-home DSL routers for several years) is now switching to licensed 2.5GHz spectrum that it bought in the 4G spectrum auctions earlier this year, in order to provide coverage over a greater distance.
So really the most interesting question here is how Amazon intends to get a TLPS access point into millions of homes. It seems highly likely that Amazon is developing a product much like an Xbox, which can serve as a “hub” for gaming and for delivery of its streaming video services (which perhaps explains Microsoft’s concerns about TLPS), connected to existing in-home broadband connections. Remember that Amazon has not been as successful as Netflix in ensuring that access to its streaming video service is widely available on consumer electronics devices like DVD players (probably because it is less willing to pay incentives for acquisition of streaming video subscribers), suggesting that Amazon may well want to push its own device instead. Its important to realize this is not about Amazon providing a rival broadband access service, like DISH’s wants to do with its former satellite spectrum in the AWS-4 band, but instead would compete with Microsoft’s Xbox and the home media hubs planned by Intel, Google and Apple, amongst others.
I’d speculate that Amazon will want to provide its “hub” to Prime users pretty cheaply, perhaps even for free, and its notable that Amazon has also been working on remote video processing capabilities using its cloud servers, potentially enabling it to simplify (and reduce the cost of) a gaming device. I’d also guess that Amazon wouldn’t want the launch of this device to be constrained by the timeline of TLPS approvals, not least because the FON-like service is only one part of the entire offering. Indeed its previously been rumored that Amazon is planning to launch a set-top box for video streaming as soon as this fall.
However, if TLPS looks likely to gain FCC approval (with the FCC establishing a way forward in the near future), an initial device launch could take place using standard WiFi (and perhaps other solutions like White Space spectrum), with the embedded capability to upgrade to TLPS, once approval comes through. That could mean an upfront option payment for Globalstar (perhaps some tens of millions of dollars?), if Amazon wants to embed the TLPS capability in its devices, but it may take a while longer before Globalstar finds out if it is going to achieve much more significant returns from its spectrum assets.
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07.22.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 6:11 pm by timfarrar
Back on May 31, LightSquared asserted in its motion to retain Jefferies as placement agent for its exit financing that “both LightSquared and Jefferies are highly confident [that the retention] will lead to fully committed financing in an amount likely in excess of the face amount of the Prepetition LP Obligations, the Prepetition Inc. Obligations, and the DIP Obligations at relatively low costs to the LightSquared estates”. Two weeks ago, I noted that LightSquared had been forced to scale down its planned $3B debt raise to $2B, and would seek to force Ergen/Sound Point to accept PIK second lien debt instead of being repaid from the exit facility.
However, on Friday night LightSquared acknowledged that exclusivity had been lost and that competing plans for reorganization would be filed, followed by an auction of the company. Moreover, I’m told that today LightSquared and Jefferies dropped the planned exit financing facility completely (not just putting it “on hold” as was reported last week).
Falcone apparently told potential investors that he was unwilling to go forward because the facility was “too expensive” (with warrants for 15% of LightSquared’s equity being granted upfront to potential lenders). However, I understand that the change of direction appears to have resulted from LightSquared being hauled over the coals by the bankruptcy court last week for ignoring Ergen’s $2B cash offer, and the judge was unwilling to accept LightSquared’s contingent reorganization plan, which would have only been funded after FCC approval was received. As the Secured Lenders noted in their submission on July 9:
“Since these Chapter 11 Cases were filed over a year ago, the Debtors have told the Court repeatedly that the only way to realize value is to pursue a resolution of their regulatory problems with the Federal Communications Commission (“FCC”), and that all they needed was sufficient “runway” to achieve their objective. When the Cases were filed in May 2012, the Debtors believed they needed about six months to get there. In January 2013, during the exclusivity hearing, the Debtors’ management testified that they still needed about six months to clear the regulatory hurdles to value maximization. Today, they claim that their elusive objective remains six months or more away…In reality, the Debtors have no idea whether or when they will ever get regulatory approval.”
Now LightSquared has set out a lengthy timetable for an auction in December 2013 (which is already subject to an objection from the Secured Lenders), because (in fantasyland) Harbinger is apparently highly confident that the FCC will approve LightSquared’s request in November, enabling them to raise money for a counterbid on the back of that approval, before the auction actually takes place. However, even if LightSquared’s proposed timetable is approved (and it appears that the judge is actually losing patience with the company’s repeated delays), it seems rather more likely that Falcone is instead going to be 0 for 3 in his battles with Ergen (with LightSquared following the path trodden by DBSD and TerreStar).
I suppose at least for the time being, Phil can still tell everyone he’s “highly confident” that he will ultimately win his battle with the SEC, but again perhaps he now shouldn’t be as highly confident as in May when he “blindsided SEC officials” by publicly declaring that he’d escaped with a “slap on one wrist“.
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07.09.13
Posted in Clearwire, Financials, Operators, Regulatory, Spectrum at 8:01 pm by timfarrar
Last week, John Dooley of Jarvinian, who have been conducting tests of Globalstar’s proposed TLPS service (which is intended to provide a dedicated, managed WiFi channel) made a filing with the FCC in which he stated that the recent TLPS testing in the Bay Area was undertaken “to help a major technology company assess the significant performance benefits of TLPS for a transformative consumer broadband application”. His filing did not state the name of this company, but the testing under Globalstar’s experimental license (issued by the FCC on April 1) was undertaken at 3 locations in Cupertino and Sunnyvale.
The 3 latitude/longitude coordinates given in the experimental license are at:
1) 20450 Stevens Creek Boulevard, Cupertino (37-19-20 N, 122-01-53 W), the contact address for Amazon’s Lab 126 subsidiary
2) 1120 Enterprise Way, Mountain View (37-24-34 N, 122-02-11 W), recently leased by Amazon to accommodate Lab 126, and
3) 10201 Torre Avenue, Cupertino (37-19-11 N, 122-01-48 W), another Lab 126 office.
Of course, Amazon’s potential interest in Globalstar’s spectrum appears to be a key reason why Thermo agreed to invest another $85M into Globalstar in May, in order to complete the 5.75% notes exchange and restructure Globalstar’s $586M loan guaranteed by COFACE. Many investors are now also eagerly expecting the FCC to issue an NPRM setting out proposed rules for TLPS, although it is somewhat unclear whether Chairman Clyburn will act on her own, or if any decision will have to wait for incoming Chairman Wheeler (who has worked extensively on interference issues as chairman of the FCC’s TAC, which issued a report in February suggesting TLPS would be a good candidate for the FCC’s new approach to adjacent band interference).
The fact that the Globalstar experimental license will last for two years suggests that it may take some time for all interference issues to be resolved (including the dispute with BAS interests which is becoming increasingly heated) and/or for Amazon to make a final decision on whether to use TLPS or other spectrum for its planned new application. If Amazon does choose Globalstar then this could lead to a substantial windfall: Globalstar has asserted that its spectrum is even more valuable than that of Clearwire, because of the unique compatibility of TLPS with existing WiFi equipment, implying that it puts a value of at least $2B on the 22MHz of TLPS spectrum.
With the FCC’s intention to license additional spectrum for unlicensed or shared use in the 3600MHz and 5GHz bands, along with promotion of white space access technology, Amazon may have a choice of other cheaper spectrum (albeit without the same ecosystem) in the near future or even using capacity on an existing wireless network. However, until we find out more about the nature of Amazon’s plans it will be hard to know which spectrum is most suitable, and how much Amazon would want to pay to gain access to it.
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07.06.13
Posted in DISH, Financials, LightSquared, Operators, Spectrum at 4:11 pm by timfarrar
On Wednesday afternoon, it emerged that Jefferies’ attempts to raise a $3B exit financing facility for LightSquared had failed, with news that the debt was being split into two tranches, a first lien of $2B, with an increased interest rate (3% extra of Pay In Kind interest) and additional warrants (10% of diluted equity instead of 5%, with all of the warrants immediately vested, instead of the warrant grants increasing over time). In other words, third parties didn’t believe that LightSquared’s spectrum was worth more than $2B, even with the required FCC approvals. The terms of the $1B second lien were not specified, except that it would be all PIK interest and the syndication of this facility would be “handled” by Harbinger.
On Friday, the New York Post revealed that LightSquared plans to ask the bankruptcy court to force Charlie Ergen’s Sound Point Special Opportunities (SPSO) fund to accept this second lien debt, because, according to Harbinger’s court filing on Wednesday, Sound Point “fraudulently entered LightSquared’s capital structure…to prevent the Debtors from successfully reorganizing and acquire the Debtors’ assets on the cheap”. Instead Harbinger, wants the court to extend the July 15 exclusivity deadline, allowing LightSquared to pursue its own reorganization plan.
Its not a little ironic that Harbinger describes Ergen’s $2B offer for LightSquared’s satellite assets and spectrum as a “low ball bid” when Jefferies has only been able to raise $2B of debt secured against all of LightSquared’s assets, including its Crown Castle lease, and it will be interesting to see how the court views Harbinger’s arguments. As I noted on Monday, it seems like fantasyland to believe that the FCC will simply give LightSquared the 1675-80MHz spectrum band in the next few months and so it might not even be possible to get hold of the $2B loan and pay off the other (non-Ergen) debt in the foreseeable future. Presumably that is why (according to the NY Post article), LightSquared plans to borrow another $200M of DIP financing to extend its cash runway into next year.
However, LightSquared will of course be supported by everyone else in the capital structure apart from the secured debtholders, because Ergen’s proposed $2B bid would do little more than pay off the secured debt, and so LightSquared’s plan is their only chance of a recovery. As a result, we saw MAST and US Bank claiming in their court submission on Monday that FCC approval is “near certain”, a ludicrous distortion of the reality of the situation, based only on Genachowski’s expressed opinion, in response to my question, that the L-band will ultimately “be freed for terrestrial use”, which supposedly “foreshadowed approval of the application”.
Its therefore going to be very interesting to see how things develop at Tuesday’s status conference. Although the subordination plan may not be discussed in detail at that hearing (I’m told it will likely be published on July 15), it would certainly be a dramatic move if the court decided to subordinate Sound Point’s $1B holding to $2B of new debt, raising the possibility that Ergen’s $1B will never be repaid if LightSquared is unable to realize more than $2B when it tries to sell its spectrum. Then perhaps Phil can commiserate with Charlie that this is how it feels to lose $1B by investing in LightSquared…
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07.01.13
Posted in DISH, Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 3:12 pm by timfarrar
Today Charlie Ergen’s next battle has officially begun, with the filing of LightSquared’s motion to extend exclusivity and potentially reject Ergen’s purchases (through Sound Point Special Opportunities Fund or SPSO) of LightSquared’s debt. Its important to note that Ergen personally (not DISH) owns SPSO, and Ergen (through an entity named L-Band Acquisition Corp or LBAC) made the $2B offer to acquire LightSquared back in May.
LightSquared wants to extend exclusivity to give it more time to secure approvals from the FCC, because Jefferies is currently trying to get commitments for a $3B exit financing loan (which should be confirmed one way or the other this week). That loan, which carries an 8% interest rate plus substantial warrants for LightSquared equity, would pay off all of LightSquared debts and give Harbinger another year or more to find a buyer for LightSquared’s spectrum, while allowing the company to meet all of its obligations (including a resumption of lease payments to Inmarsat in April 2014).
However, LightSquared would not be permitted to draw down the loan unless and until the FCC has granted LightSquared rights to use the 1675-80MHz spectrum band. LightSquared has assured potential investors that it expects approval from the FCC this fall, shortly after Tom Wheeler takes over the chairmanship of the FCC, and that there will be no auction of the 1675-80MHz band (instead LightSquared will pay $80M for weather balloon relocation plus a further $170M “fee” in 2017). LightSquared also believes that it will be free to use its L-band uplinks without any GPS problems, as soon as the ruling is issued, and has told potential investors that the lower L-band downlinks will be available for use in 2015.
That sounds a lot like fantasyland (for example the FCC’s proposed FY2014 budget indicates that the 1675-80MHz spectrum will not be available until 2017 after weather balloons have been relocated), and some investors are apparently considering making a commitment in the expectation that no approvals will be received, because then they will get their commitment fees (in cash), but never have to put their money at risk.
A plausible best case for LightSquared is that the FCC defines a way forward later this year (i.e. more GPS testing and work to define interference standards), but it seems inconceivable that the FCC could simply hand over the 1675-80MHz spectrum band without at the very least defining service rules and an allocation framework through an NPRM and then conducting a 9-12 month comment cycle before any ruling is issued. More likely is that Wheeler has other things on his plate (like the incentive auctions), and a giveaway to LightSquared (along with alienating the DoD through more GPS testing) is not worth the political battle.
LightSquared is suggesting that a $3B loan would be well covered by the spectrum value, because it considers its spectrum to be worth the same as AWS-1 spectrum ($0.69/MHzPOP based on the Verizon-SpectrumCo transaction) and that there will be strong demand for its spectrum from AT&T and Sprint, who LightSquared believes would want to pair L-band uplink spectrum with WCS or BRS/EBS downlink spectrum respectively. While AT&T has the power to create a new ecosystem and has permission from the FCC to use WCS in an all downlink configuration, its hard to see why AT&T wouldn’t instead just buy the 1695-1710MHz uplink band which will be auctioned (very likely as unpaired spectrum) next year, with little competition from other carriers (except possibly DISH).
Sprint on the other hand has certainly learned its lesson from paying Apple $15.5B to ensure its own non-standard LTE spectrum was included in iPhones, and it would be crazy to try and make another unique band pairing when it will be far more straightforward to simply make use of the globally allocated BRS/EBS band in SoftBank’s small cell vision. Remember that Ergen wanted to buy Clearwire spectrum to take advantage of the emerging handset ecosystem in this band (as a mobile small cell play), and was going to use the AWS-4 spectrum for fixed wireless broadband (backhauling the mobile small cell traffic), so it wasn’t necessary to force the creation of a handset ecosystem in AWS-4. There’s no way that LightSquared’s spectrum will get an ecosystem outside North America (because international regulators won’t rush to address GPS issues and the 1670-80MHz band will still be allocated for meteorological systems elsewhere in the world), and without AT&T or Verizon, no-one will create an ecosystem in the US either.
So why is Ergen interested in buying LightSquared? If he’s now stuck without a wireless partner (and I don’t expect him to bid for T-Mobile now he won’t control any Clearwire spectrum), then he won’t be able to sell the AWS-4 spectrum to AT&T or Verizon (the two carriers who can force the creation of a new ecosystem at little cost to themselves) until after the next Presidential election, so it would be possible to take this time to reband AWS-4 spectrum to downlink and use LightSquared as uplink. More importantly, LightSquared’s spectrum is part of Ergen’s leverage in a battle with DirecTV (due to the upcoming Mexican coordination), which in my view is a far more plausible near term merger target for DISH, especially if the promise of a fixed wireless broadband network is sufficient enticement for the FCC to approve a DISH-DirecTV merger.
Of course, prospective lenders to LightSquared are therefore also betting that they will ultimately be backstopped by DISH’s interest in the spectrum band. Indeed some even think that Ergen will be prepared to bid $3B+ for the spectrum (despite the fact that this is far higher than DISH offered for Clearwire’s spectrum). Lenders might instead want to consider that by next year, a DISH-DirecTV merger will either have happened or not, and LightSquared’s spectrum will then offer little in the way of leverage to DISH.
In addition, the forthcoming FCC auctions of 75MHz of spectrum (H block, 1695-1710MHz uplink and AWS-3 likely paired with 1755-80MHz) may reset some expectations with regard to spectrum pricing, especially in unpaired uplink bands. Given that the new $3B loan will all have been spent within 12-18 months of emergence, it therefore seems there would be little reason for anyone interested in this spectrum not to wait until LightSquared once again runs out of money, and the price of the debt falls.
The one piece of good news, for Falcone, if not for the new lenders, is that as part of any exit financing deal, it seems that Harbinger will be released from any liability for misleading investors during the sale of LightSquared debt in 2010 and 2011 (when lenders were assured that GPS interference was no problem). So even if Phil ultimately does lose all of his investment in LightSquared, at least he will then only have to account to Harbinger’s investors and not to LightSquared’s investors as well.
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