12.06.12
Posted in DISH, LightSquared, Operators, Regulatory, Spectrum at 12:34 pm by timfarrar
No not his assertions that “I still believe that we had a great, and we still do have a great vision” and that “a bankruptcy would not necessarily wipe out the equity holders of LightSquared because the spectrum it owns retains value”, which look like they are moving even further away from being realized as time goes on.
LightSquared’s latest plan is to relinquish terrestrial rights in part of its L-band spectrum in exchange for the right to use additional government spectrum used by NOAA. However, I’m told that although NOAA may be prepared to allow terrestrial use of the 1675-80MHz spectrum band (subject to payment of relocation costs to move their radiosondes to the 401-406MHz band), LightSquared’s plan may now be derailed by the apparent intention of Congress to mandate an auction of “at least 15MHz” of spectrum in the 1675-1710MHz band, thereby requiring LightSquared to buy this additional spectrum at auction rather than being given (what they are portraying as) a “swap”.
After all, most Democrats appear to have concluded that “What happened to LightSquared is disappointing…But unfortunately that ship has sailed”. NOAA would presumably also like to maximize the auction proceeds to fund the relocation of its other systems in the 1695-1710MHz band which will also be auctioned as (lower value) uplink spectrum. As a first step, NOAA’s position may become clearer next week once the initial comments are filed in response to LightSquared’s petitions for rulemaking.
What I’m actually referring to in the title of this post is Phil’s comment on my blog post back in August 2011 that “Everyone knows Ergen is not going to build out a network. No one trusts him, including the FCC. They are not going to put their eggs in that basket because they know he will make them look foolish.”
That does appear to be a pretty good summary of the underlying rationale behind the FCC’s draft AWS-4 Order, circulated just before Thanksgiving, because the Order does not impose any anti-windfall conditions that would stop DISH from selling the spectrum to another operator, but instead attempts to mitigate this windfall (a concern the FCC is acutely sensitive to) by ensuring that the proceeds of an H-block auction can be maximized. If sold to existing operators, then the 50MHz of spectrum in AWS-4 and H-block combined would help to preserve the current four player wireless market in the US and would also mean that (as the FCC Chairman’s former advisor put it this week) “we’re not in the rush we originally thought” to address the purported spectrum crunch.
Despite this encouragement to cash in, DISH objected to the draft order, with Ergen appealing in person to each of the five Commissioners to make changes. However, the FCC fired back at DISH and has now scheduled the order for a public vote at the meeting on December 12, sending a signal of unanimity to DISH, and perhaps also discouraging any Commissioners who might be wavering from taking a position that would increase DISH’s potential windfall at the expense of H-block auction proceeds for the Treasury. Sprint has maintained its opposition to the latest changes proposed by DISH, and appears to have been successful in fending off any modification to the original draft (if Sprint was losing ground then I would have expected to see more vocal objections, as opposed to the current strategy of providing behind the scenes briefings and a rather non-specific ex parte filing).
Thus I’m left wondering whether DISH will now be persuaded that its best interests lie in selling out (especially given the diminishing number of available partners), or if instead DISH will continue to fight with the FCC (and challenge the legality of the Order as outlined in last week’s ex parte filing), potentially holding up the deployment of both AWS-4 and the H-block?
Could Sprint have designs on the AWS-4 spectrum as well (after all, Ergen is known for fighting vigorously right up to the time he does a deal with an opponent), or will it simply want to take advantage of disposals that AT&T would be forced to make after buying DISH’s spectrum? We should know more about Ergen’s intentions very soon, and Sprint’s proxy filing, now delayed until December 21, should make even more interesting reading than that of MetroPCS, because it will have to reveal if discussions have been going on with DISH behind the scenes over any potential deals.
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11.17.12
Posted in DISH, Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 11:52 am by timfarrar
Over the last 36 hours there has been a constant stream of stories about DISH Network’s negotiations with various players to launch its proposed wireless network, in what appears to be a last ditch attempt to deflect the FCC from its declared intention to impose strict interference conditions on DISH’s spectrum in order to make the H block auctionable.
First we saw reports of DISH’s “exploratory stage” talks with Google, which unsurprisingly led to massive speculation about Google’s desire to get into the wireless business, largely omitting any mention of Google’s previous (financially disastrous) investment in Clearwire, which was motivated solely by a desire to create more competition and cheaper wireless service and had nothing whatsoever to do with enabling Google to become a wireless operator.
Now we’ve seen reports about DISH’s unsuccessful bid over the summer for MetroPCS, as revealed in MetroPCS’s preliminary proxy statement filed last night. We also saw DISH highlighting that 3GPP standardization work has been completed, with the implication that DISH could move forward very quickly if the FCC approved the network without new interference conditions.
However, it seems clear that the FCC is having none of it, with officials briefing that they are close to a decision, which is expected to confirm that the H block will be auctioned for high power use and therefore the lower part of DISH’s uplink band will face significant powwer restrictions. In other words, the FCC is placing a higher priority on ensuring Sprint has sufficient LTE spectrum (i.e. can extend its 5x5MHz G block LTE network to a 10x10MHz network) and moving forward with an auction of the H block to raise $1B+ than they are on trusting DISH to become a new entrant in the wireless market.
In light of the Sprint-Softbank and TMobile-MetroPCS deals, the FCC has achieved its goal of having four viable players in the US wireless market, and so presumably does not see as much need to encourage a new entrant. Indeed I would expect the FCC would be relatively content to see the DISH spectrum go to AT&T, if it could then “encourage” AT&T to sell some of its PCS spectrum to Sprint (along the lines of Verizon’s AWS spectrum deal with TMobile). We might even see a similar “swap” in the PCS band between TMobile and Sprint (with Sprint getting more of the spectrum and paying some cash to TMobile) as an alternative to a potential rival Sprint bid for MetroPCS. After all, TMobile has far more spectrum per subscriber than any of the other three major players (if Clearwire’s holdings are excluded).
Does DISH have many other options left to build out a new network of its own, as opposed to selling the spectrum to AT&T and pursuing a merger with DirecTV? There still appears to be uncertainty about the status of a potential deal with Clearwire, though DISH’s 10-Q confirmed (as I suggested previously) that it has raised its stake in Clearwire’s debt by $400M during the third quarter to a total investment of $745M (note that Clearwire is not named in the 10-Q, but the amount invested is too large for the investment to be in LightSquared, given other declared holdings).
DISH has undoubtedly talked to almost everyone in the wireless industry, but apparently these talks are currently only at the exploratory stage, which is quite surprising given how much time has elapsed. Of course what the MetroPCS proxy statement reveals is that everyone else has been talking as well, and as set out below, the proxy provides some very interesting nuggets about what’s happened over the last 18 months, once you decode the references to Companies A through H.
Company A: DBSD. MetroPCS determined that DBSD’s spectrum was more attractive than TerreStar’s spectrum and MetroPCS made a binding offer for the spectrum in March 2011, but lost out to DISH.
Company B: TerreStar. MetroPCS ultimately decided not to pursue TerreStar, leaving Harbinger out in the cold in June 2011, but then negotiated unsuccessfully with DISH during the summer of 2011 over a potential sale of spectrum, joint venture or contribution of the spectrum in exchange for equity in MetroPCS.
Company C: DISH subsequential expressed interest in buying MetroPCS, starting in March 2012 when it became clear DISH would not receive its hoped-for ATC waiver, and ultimately made a bid of $11 per share in August 2012, which was rejected by MetroPCS because it was less than the value offered by TMobile. DISH then indicated that it was unwilling to pay a higher price.
Company D: Clearwire. MetroPCS offered to buy spectrum from Clearwire in late 2011 (and earlier had even considered buying the whole company), but was unable to agree on terms. These discussions were revived in June 2012 when Clearwire again suggested a sale of spectrum and a “substantial investor” (Sprint or perhaps DISH???) proposed splitting the company between themselves and MetroPCS. Those “occasional” discussions continued up until the TMobile deal was announced.
Company E: Leap. Leap offered to sell “excess” spectrum to MetroPCS in the first half of 2011, but as early as June 2011 had decided to sell the spectrum to another wireless company (Verizon). This implies both that Verizon sat on the Leap deal until it had completed its negotiations with SpectrumCo in December 2011, and that the transfer of the Chicago 700MHz A block spectrum to Leap was presumably only included so the deal could be portrayed to the FCC as a “swap”. (Of course Leap’s presumed follow-up deal of a sale to US Cellular has now been derailed by US Cellular’s exit from the Chicago market and sale of its spectrum to Sprint). In May 2012, Leap asked MetroPCS to consider a combination of the two companies, but MetroPCS decided such discussions would not be productive. Then in July 2012, Deutsche Telekom also raised the prospect of combining Leap with TMobile and MetroPCS, as part of a single transaction, but MetroPCS declined, presumably because of the added complications it would entail.
Company F: AT&T. As was widely reported at the time, MetroPCS was in discusssions with AT&T in 2011 about potential asset sales as a condition of the TMobile acquisition. However, this did not come to fruition because the acquisition was blocked by the DoJ and FCC. Later, in August 2012, MetroPCS discussed approaching AT&T, but the consensus opinion was that AT&T would not be interested in buying MetroPCS.
Company G: Sprint approached MetroPCS about a potential acquisition in September 2011, and this led to the abortive bid in February 2012, which was vetoed by the Sprint board. Even after this time discussions continued with Sprint, and Sprint indicated in August and September 2012 that it was still interested in an acquisition of MetroPCS.
Company H: Verizon. MetroPCS held discussions with Verizon in the spring of 2012 about potentially buying some of the AWS and 700MHz spectrum that Verizon would need to divest to get approval of the SpectrumCo transaction. However, Verizon was not particularly interested in selling the AWS spectrum to MetroPCS (and entered into a deal with TMobile instead).
What all this appears to show is that DISH has looked at a number of transactions which involve further investment in the sector, but the main reason these have not come to fruition is that DISH is trying to pay as little as possible for any acquired assets. Alternatively, if DISH was to be a seller, then it was looking for too rich a price (at least for MetroPCS). In this context, it is likely that only Clearwire would be prepared to do a deal to sell assets to DISH on such terms, as I’ve speculated previously. It also seems pretty clear that the potential network sharing deal mentioned in the WSJ article about the discussions with Google would most likely be with Clearwire rather than Sprint, because the benchmark terms set by Sprint’s deal with LightSquared would be unattractive to DISH. As a result, it seems we are back to where we started – could DISH still pull off a deal with Clearwire (and does it want to in the current circumstances?), or will DISH end up selling its spectrum to AT&T and pursuing a merger with DirecTV instead?
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10.24.12
Posted in DISH, Financials, Operators, Regulatory, Spectrum at 11:41 am by timfarrar
Is Charlie Ergen giving up on his wireless plans? An interview with Bloomberg published this morning seemed to signal a change of stance, particularly the explicit suggestion that Ergen would be open to simply selling his spectrum to AT&T, when his (coded) message for the last year has been that AT&T would need to buy the whole of DISH (at a huge premium).
Not only has the Softbank deal enabled Sprint to escape from the box DISH had been trying to put it in, but by buying McCaw’s stake in Clearwire, and indicating to other strategic investors on the board that further equity purchases are up for negotiation, Sprint looks to have headed off Ergen’s planned deal to purchase assets from Clearwire.
Despite this, perhaps Ergen could still do a deal with other partners like Carlos Slim or DirecTV, but it is harder to see the rationale for investing in building a fifth competitive operator than it was a month ago, when Sprint (and perhaps even T-Mobile) were perceived to be in a much weaker competitive (and financial) position. In addition, we may be seeing AT&T attempt to warn off Carlos Slim from a deal with Ergen, in the form of mutterings about foreign ownership of other wireless operators.
So it looks like Ergen may now turn his attention towards a potential merger deal with DirecTV. In the short term that means putting pressure on DirecTV to come to the table, most obviously by competing with them in Brazil. Indeed, Echostar told the FCC at the end of September that it planned to move the Quetzsat satellite to the 61.5W slot, freeing up AMC-15 to be relocated to 45W in order to provide service into Brazil “as soon as January 2013“.
Wireless and broadband could also be a key part of this deal, via an alignment of both satellite TV operators with AT&T, similar to the Verizon-cable TV partnership, and that would be cemented by the sale of DISH’s spectrum to AT&T. Nevertheless, I would expect the sale to come ahead of an agreement with DirecTV, simply because being left out of a DISH-AT&T alliance would put even more pressure on DirecTV. As I noted last December, this alignment would cement AT&T and Verizon’s market leadership. However, given that the FCC backed off mandating wholesale access as a condition of approving the Verizon/SpectrumCo deal, the only plausible way to promote competition to these two players may then be to allow Sprint and T-Mobile to merge.
Of course putting a price on DISH’s spectrum is hard, but I suspect that the most appropriate comparison for the AWS-4 spectrum is the WCS band which AT&T purchased recently, because neither band is usable immediately (unlike AWS). AT&T paid NextWave more than expected for WCS, but this was offset by the fact that AT&T already owned a substantial part of the band, for which it had paid very little. I would therefore expect an AWS-4 sale to be at a fairly similar price to that AT&T paid NextWave for the usable parts of the WCS spectrum: somewhere in the range of ~$0.30-$0.40/MHzPOP (depending on how much value is attributed to the C/D blocks and AWS holdings), i.e. of order $3.75B-$5.0B plus perhaps another $1B for DISH’s 700MHz E block spectrum.
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10.16.12
Posted in LightSquared, Operators, Regulatory, Spectrum at 12:30 pm by timfarrar
Today the House Energy & Commerce Committee has released the documents from last month’s hearing, which makes for some interesting reading.
For one, its intriguing that the FCC Chief Economist (on p33 of the PDF) highlights “just how lucrative ATC service could be”, noting that “an entrepreneur that purchased a mobile satellite property wth 34 MHz of ATC-eligible spectrum and successfully rolled out ATC service in partnership with a CMRS incumbent could obtain a rent of $11 billion, equal to the difference between the value of the spectrum ($12 billion) and the cost of developing the required satellite system ($1 billion).”
That $12B valuation of course is the same as LightSquared’s economic consultants used, back in June 2011, to estimate that the January 2011 waiver was worth $10B to LightSquared. The documents also indicate (p10 of the PDF) that the FCC Chairman was warned in September 2009 about the “equity considerations of providing a ‘windfall’ to companies who did not acquire the licenses at auction” and even at that time “changing the ATC handset requirements” was under discussion.
However, far more interesting are the details of the discussions over the extension to the very short comment period on the waiver request in November 2010 (pp13-15 of the PDF). It is clear that the FCC had essentially already agreed the waiver with LightSquared and had “discussed [the timetable] previously”. The FCC was working to this “tight” timetable (later derailed by NTIA concerns about GPS interference) so that order could be issued on December 20, a date that was described as “critical”.
Of course (although it is not stated in the emails) the reason that this date was so critical was that (as I suspected at the time), the Commission intended to (and did) vote on net neutrality rules at the December 21, 2010 Open Meeting, which excluded wireless networks from net neutrality obligations. As a result, if the FCC had been able to announce the LightSquared waiver at that meeting, it would have been possible to say that at least one major 4G network provider had signed up to net neutrality principles of its own accord, effectively endorsing LightSquared as a competitor to the major cellular operators.
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Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 8:44 am by timfarrar
Despite considerable efforts by Charlie Ergen, it looks like the Softbank deal may now have enabled Sprint to escape from the box of constrained capital, limited spectrum and a second rate network that Sprint could have been confined to, if it had failed to gain access to either usable H block spectrum or Clearwire’s network on economically advantageous terms. Many thought that Sprint would move to purchase Clearwire immediately after the Softbank investment, but today sources are denying that is the intention, stating that Sprint has no intention of taking part in mergers or acquisitions until the Softbank deal is finalized in mid-2013. This timeline also implies that Sprint will not move to disrupt the T-Mobile/MetroPCS merger, which is expected to close in 2013Q2.
So the obvious question is why did Sprint need to issue a $3B convertible bond to Softbank right now? I think that can only be intended to warn off others from doing a deal with Clearwire in the interim, by offering John Stanton the carrot of improved economics and/or further investment from Sprint. Of course there are not many options for Clearwire to sell spectrum, now that T-Mobile and MetroPCS, the two operators most frequently rumored to have designs on Clearwire’s spectrum, are getting together.
As a result, I think Sprint’s actions appear to confirm that Clearwire was about to pull the trigger on a deal with Ergen, as I suggested last month, involving an asset sale and/or WiMAX customer transfer, in exchange for a combination of cash and debt. Notably, receipts from a sale of network assets (as opposed to a spectrum sale) would not have to be used to repurchase Clearwire’s first lien debt, suggesting that this could be a preferred way for Clearwire to raise funds. In addition, I’m told Ergen now holds in excess of $900M of Clearwire’s debt (not all first lien), and some of that could potentially have been traded for Clearwire spectrum.
Reports on the Sprint/Softbank deal have also suggested that both Carlos Slim and SK Telecom have considered investments in Sprint, and it is worth noting that SK Telecom invested $60M in LightSquared back in 2010, while Slim is rumored to be buying LightSquared debt. In fact I’m told that further significant purchases of LightSquared debt have taken place in recent weeks. If one or both of those two players therefore continue to maintain their interest in US telecom assets (which has obviously included MSS-ATC spectrum similar to that held by DISH), then Ergen may be the last, best potential partner available.
So has Sprint now prevented Ergen from achieving a deal with Clearwire? I’m told that (at least with the current ownership situation) Sprint would have no ability to veto such a transaction, so presumably Stanton will now be trying to extract vastly improved economics from the existing capacity agreement with Sprint in order to forego a DISH deal. What concessions will Sprint be prepared to make, and if it does give ground, where does that leave DISH? After all, it doesn’t seem that AT&T is prepared to pay Ergen’s asking price (perhaps as high as $80-$90 per share?) to purchase the whole of DISH anytime soon. Ergen must certainly be fuming at how FCC delays have prevented him from moving forward, while potential partners seem to be rapidly exiting the dance floor. At least he appears to have made a profit on his investment in Clearwire, but that may be little consolation if it now proves more difficult to find a way to monetize DISH’s other, much larger, spectrum investments.
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10.13.12
Posted in Regulatory, Spectrum at 7:11 am by timfarrar
As I pointed out last week, despite growing skepticism over “What happened to the spectrum crunch?“, the FCC Chairman has been busy making speeches about how “U.S. mobile data traffic grew almost 300% last year, and mobile traffic is projected to grow an additional 16-fold by 2016″ and asserting that
“There were many skeptics [in 2009] about whether we faced a spectrum crunch. Today virtually every expert confirms it.”
One would assume that the FCC Chairman regards the CTIA as experts, because after all they have been amongst the foremost cheerleaders for the spectrum crunch over the last three years. Indeed, upon releasing their latest wireless industry statistics, CTIA’s press release on Thursday proclaimed that “Wireless Network Data Traffic Increased 111 percent and Highlights Industry Need for More Spectrum”.
However, the press release buried the far more significant message in the CTIA’s actual data (which counts wireless network traffic from 97% of all US wireless subscribers – it is unclear if any WiFi traffic is included, but it appears not), namely that growth in data traffic per device came almost to a full stop in the first half of 2012 (compared to the previous six months), presumably due to a combination of:
1) changes in user behavior (offloading to WiFi),
2) dilution from less active users buying smartphones, and
3) data caps beginning to impact some high end users.
According to the CTIA survey, total wireless data traffic in the US in the first six months of 2012 was 635B Mbytes, up only 21% on the 526B Mbytes recorded in the previous six month period. This compares to the 54% growth seen in wireless data traffic between H1 and H2 of 2011, and the 51% growth in traffic between 2010H2 and 2011H1.
Even more remarkably, with the number of smartphones and wireless connected tablets growing by 16% between 2011H2 and 2012H1, data traffic per device was only up about 3% (based on the average number of devices in each 6 month period), compared to 29% between H1 and H2 of 2011 and 23% between 2010H2 and 2011H1.
As shown in the chart below, if we extrapolate this same growth in traffic per device to the second half of 2012, then total data traffic during the period will be about 750B Mbytes, and total traffic for 2012 will have increased only 60% compared to 2011. That is only half of Cisco’s Feb 2012 estimate of 118% growth in North American mobile data traffic between 2011 and 2012, and would clearly force a complete re-evaluation of future traffic projections. However, just from the data in the first half of 2012, we can already see that traffic growth is clearly not “exponential” and has now passed its peak. More importantly, if growth in traffic per device has been brought under control, then a spectrum crunch is no longer possible in the foreseeable future, because smartphone penetration is already approaching saturation.
As others have pointed out, “there is no more scarcity of wireless spectrum than there is a shortage of, say, the color purple”. Its therefore perhaps ironic to note that back when the last Emperor Julius (Caesar) was in charge, “virtually every expert confirmed” that the color purple was expensive, difficult to find and limited by regulatory fiat to a tiny elite group.
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10.04.12
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 1:23 pm by timfarrar
FCC Chairman Genachowski took a trip to Wharton today, to tell a bunch of students about “the incredible world of mobile communications”. However, he also gave away an enormous amount of information about the FCC’s spectrum agenda, which so far has gone almost completely unreported. As first sight one might be distracted by such nonsense as “U.S. mobile data traffic grew almost 300% last year, and mobile traffic is projected to grow an additional 16-fold by 2016″ and the boast that he alone knew “that something was up”, “did the math” (wrongly) and “sounded the alarms…about the looming spectrum crunch”. Incredibly Chairman Genachowski even makes the ludicrous claim that:
“There were many skeptics [in 2009] about whether we faced a spectrum crunch. Today virtually every expert confirms it.”
Of course this comes just at the time when journalists are starting to ask “What happened to the spectrum crunch?”
Once you’ve stopped laughing at all of this, the meat of the speech is in fact very useful, as the Chairman indicates just how he hopes the “audacious” target in the National Broadband Plan of freeing up 300MHz of spectrum by 2015 will be “exceeded” by a combination of auctions, removal of regulatory barriers, clearing the TV bands and spectrum sharing. First of all, 75MHz of AWS spectrum will be auctioned, including, in 2013, the 10MHz of H-block spectrum desired by Sprint. This confirms that DISH has lost the battle to avoid a 5MHz shift in its uplinks, but in compensation DISH will at least be authorized to use the full 40MHz of spectrum (2005-2025MHz up and 2180-2200MHz down) for a terrestrial network “later this year”.
Secondly, an additional 50MHz of AWS-3 spectrum (desired by T-Mobile) will be auctioned, based on spectrum sharing with the DoD in the 1755-1780MHz uplink band. Finally, AT&T will get its rebanding of the WCS spectrum approved. The Chairman even indicates that the FCC is “working with stakeholders to enable use of the portions of the mobile satellite spectrum in the L- and Big LEO bands [i.e. LightSquared and Globalstar] for terrestrial service” although notably this spectrum is not included in the 2015 total, indicating that these efforts may not be concluded quickly.
The most obscure reference is in the unstated 15MHz balance of AWS spectrum planned for auction before 2015. Given the short timeframe, this can only be the 1695-1710MHz spectrum being reclaimed from NOAA. Presumably this block will be made available as uplink spectrum (because it is adjacent to AWS-1 uplinks at 1710-1755MHz) and as such it will be attractive for AT&T to pair with the WCS spectrum (which will probably all be converted to downlinks). However, this leaves LightSquared in a bind over the spectrum “swap” it proposed last Friday, because LightSquared does not want more uplink spectrum (let alone having to buy it in an auction), and after giving up the 1695-1710MHz block, NOAA will need to use the 1675-80MHz band even more intensively for weather balloons.
Looking at the bigger picture, the situation may be made more difficult not just for LightSquared, but for DISH and Clearwire as well, because the FCC’s actions appear designed to give all of the major wireless operators the spectrum they are hoping for in the near term. Specifically, the FCC intends to free up the H block for Sprint, the AWS-3 block for T-Mobile and 1695-1710+WCS for AT&T, while Verizon has already had its SpectrumCo purchase approved. Especially in the wake of yesterday’s T-Mobile/MetroPCS merger, this makes me wonder just how many attractive alternatives Charlie Ergen still has to a deal with Clearwire for buildout of his 2GHz spectrum?
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09.28.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:05 am by timfarrar
So LightSquared has filed a modification application this morning with the FCC, proposing that it be granted access to the 1675-80MHz spectrum as an additional downlink, in exchange for relinquishing rights to deploy a terrestrial network in the 1545-55MHz band. LightSquared also asks the FCC to open a rulemaking proceeding to develop service rules for terrestrial use of the 1526-36MHz band. During the pendency of this proceeding, LightSquared offers to “voluntarily” not deploy the L-band downlink spectrum on its terrestrial network.
This proposal certainly represents a climbdown from the options that LightSquared presented to the FCC in May, coming close to the (worst case) 5MHz option presented by LightSquared at that point, but falling short of that demand for “quick start” options that would allow LightSquared “to expeditiously recommence deployment” in 5MHz of the spectrum and leaving open the transition plan for eventual use of the lower L-band spectrum. Indeed several critical issues, like how the pairing would work between the L-band uplink and 1670-80MHz downlink, how concerns about handset (uplink) interference would be addressed, and what level of coverage can be achieved while protecting “the integrity of continuing, essential government operations in 1675-1680 MHz and the adjacent spectrum at 1680-1695 MHz” are left undefined.
[UPDATED 9/28 & 10/3] Indeed the use of 1675-80MHz by LightSquared could prevent the FCC from auctioning 15MHz of spectrum in the 1675-1710MHz as mandated by Congress, and will certainly meet with heavy opposition from NOAA. Critically, as identified in the NTIA report on this band back in October 2010, there is no ITU allocation for mobile service in the spectrum above 1675MHz, a matter which is intended to be addressed by WRC-15. A NOAA presentation to the ITU highlights that the decision to free up the 1695-1710MHz band will require weather balloons (radiosondes) to use the 1675-80MHz band and that “Radiosondes and Broadband Mobile cannot share common spectrum in same geographic areas”. Given that weather balloons need to be used across the US and can drift for hundreds of miles during their flights, it is rather surprising that LightSquared’s lawyers suggested in court on Monday (Oct 1) that:
“We’ve made substantial progress on our regulatory issues…Short of a few sections of the country, dead zones we will attempt to resolve through other means, this would give us 4G LTE coverage throughout the country. It’s not the proverbial home run everyone said we’d hold out for, but it is a significant terrestrial network.”
Instead, LightSquared has told the FCC that it “believes that it is necessarily relieved of the obligation to meet the build-out milestones” imposed back in 2010 and gives no indication of any desire to rapidly deploy a network, as opposed to securing access to spectrum that could then be sold to another wireless carrier. While LightSquared discusses the use of the spectrum it would be granted for a “new, competitive broadband network” the commitment to provide “wholesale access” is notably absent from its new submissions.
LightSquared quotes the PCAST report pretty heavily, highlighting that (as I suspected) it is jumping on the PCAST bandwagon to gain FCC and White House support. However, it is ironic that while LightSquared suggests it is looking “to share [the 1675-80MHz band] with certain government users”, in fact it is still asking for a spectrum “swap” to “use the 1675-1680MHz band to provide a commercially-useable, terrestrial wireless broadband service as part of a contiguous 10 MHz downlink channel”.
That is what is needed to sustain Harbinger’s argument that LightSquared is still worth the billions of dollars required to maintain control and after the recent successes with the FCC it looks like the debtholders will now wait a few months to see how this strategy plays out rather than arguing for an immediate termination of exclusivity which would allow them to force Falcone to “put his money where his mouth is” and pay them off at par. However, it seems likely that if this attempt fails, the debtholders will be quick to declare “that’s it for me”.
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09.25.12
Posted in Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 5:25 am by timfarrar
Surprisingly little attention is being given to Charlie Ergen’s upcoming PCIA keynote speech on October 3, where he is set to “discuss DISH’s wireless plans” and will be followed by a Q&A session with FCC Chairman Genachowski. This may be due to the fact that many analysts believe DISH are unlikely to build out a wireless network and will instead seek to sell their spectrum to AT&T. Support for this view comes from the narrowing field of potential partners for DISH, with DirecTV indicating last week that “it’s hard for us to see why we would want to go and compete in [the wireless] space”. DISH have also been pushing back at the FCC on the proposed shift of their uplinks by 5MHz into the 2005-25MHz band, claiming that a 5MHz buffer is needed between their spectrum and BAS operations above 2025MHz, and that a shift would cause serious delays for their network buildout plans. However, our BAS industry contacts indicate that any interference issues would be largely manageable, and so many believe DISH may struggle to win this battle on interference arguments alone.
However, I think that in fact the chances of any spectrum sale to AT&T in the near future are rather low, unless DISH can put forward a wireless business plan that scares AT&T into making a knockout bid for the company. Indeed it is in AT&T’s interests to sit on the sidelines if they expect DISH to struggle with network buildout and customer acquisition, because then the potential price for taking the assets off DISH’s hands would most likely go down, and AT&T does not need (and could not use) the 2GHz spectrum band for several years.
As a result, whether or not a deal with AT&T remains a possibility, DISH now need to come up with a concrete plan for their network buildout as well as partnerships that AT&T would consider a real threat. Some of these pieces now appear to be coming together, and the first details may even emerge as soon as next week’s speech. With regard to a network buildout plan, it is interesting to note that DISH have apparently been building a significant stake in Clearwire’s first lien debt, which totaled almost $400M at the end of June and may now be considerably higher. Clearwire have also been highlighting the potential for “asset sales” to raise the money required to complete their planned LTE buildout.
A deal which could meet the needs of both DISH and Clearwire would be for Clearwire to sell its existing WiMAX network and retail customer base to DISH for something like $1B to $2B in cash (and Clearwire debt?) and then enter into a network sharing agreement for Clearwire and DISH’s separate LTE buildouts. This would allow DISH to acquire a network covering 130M+ people (and perhaps more when moved to the 2GHz band) at a very substantial discount to the $4B that Clearwire have invested in their network to date, and enable DISH to offer fixed wireless broadband to their existing satellite TV subscriber base. Indeed, by adding an outdoor 2.5GHz terminal alongside their satellite TV antennas, DISH could extend the range of the 2.5GHz WiMAX network to cover considerably more people compared to existing indoor modems. DISH would also presumably develop a dual mode 2.5GHz WiMAX/2GHz LTE (and perhaps 2.5GHz LTE) handset to provide an evolution path for Clearwire’s handheld customer base. Meanwhile, Clearwire could substantially reduce their network costs and gain additional income from leasing 2.5GHz spectrum to DISH for the next several years.
The second part of the puzzle is who DISH’s partner(s) for their wireless operation might be. Obviously AT&T and Verizon could not be partners, and after their AWS spectrum deal with Verizon, T-Mobile are almost certainly out of contention. Sprint have been looking for a hosting customer similar to LightSquared to help defray the cost of Network Vision, but if DISH enter into a network deal with Clearwire then that would likely rule out a partnership with Sprint (though Sprint’s wholesale WiMAX customers would continue using the Clearwire/DISH network for the time being). With DirecTV also now on the sidelines, it looks like DISH’s partner would have to come out of left field, and the only obvious option there would be Carlos Slim (and presumably America Movil). Its worth noting that Slim already appears to be interested in MSS spectrum, given he is probably the only remaining credible possibility for the mystery LightSquared investor that many thought was Ergen earlier this year, and he has an existing relationship with Ergen in Mexico, so a deal here would not be that much of a surprise.
The biggest unknown is how much of this unfolding story will emerge next week at PCIA. With the FCC not expected to approve DISH’s request for terrestrial use of the AWS-4 spectrum until later in October, it may be risky to reveal too much right now. If an announcement does come next week, then it will also come as a major shock to most wireless industry observers, because almost no attention is being given to the possibility of a tie-up between DISH and Clearwire. However, this may be the last chance for DISH to pressure the FCC not to shift their uplink spectrum, and a major announcement of network plans could tip the scales in their favor. As a result, I suspect that Ergen’s speech could well contain an announcement of a network deal, a partnership or perhaps even both.
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09.24.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 4:05 am by timfarrar
The FCC witnesses’ testimony at the House Energy & Commerce subcommittee hearing last Friday certainly came as a surprise to many observers, including myself, with their emphasis on blaming the GPS industry for not raising concerns at an earlier date. Predictably, that position defanged much of the criticism from Republican lawmakers, who have switched seamlessly from describing LightSquared as a product of government-backed crony capitalism to a shining example of private enterprise ruined by government regulation. However, it was of course anathema to the GPS Coalition, whose Jim Kirkland described the FCC testimony as “deeply misguided and wrong“.
I had heard earlier in September that the FCC was working on an order which apparently confirmed the February ruling, but it seems that within the last couple of weeks, LightSquared’s lobbying has paid off and the FCC intends to delay a decision (potentially until after the November election) in order to explore alternative solutions which would allow LightSquared to move forward without the widely anticipated litigation battle. Indeed the FCC testimony indicated that receiver performance issues, which had largely been sidelined after the March workshop, are now going to be the subject of a report from the FCC’s Technological Advisory Council (TAC) in “the next few weeks”, which would presumably precede the ruling on LightSquared itself.
While at first sight it may seem surprising that the FCC wants to take up the LightSquared issues once again and initiate another fight with powerful government agencies such as the DoD and FAA, what may have tipped the scales is the enthusiasm of the FCC Chairman for implementing the recommendations of the recent PCAST report on the sharing of government-held spectrum with commercial wireless operators. That alone portends a battle over spectrum with the DoD, but with the White House standing alongside the FCC (as it did in the early stages of the LightSquared waiver effort), the FCC presumably feels confident that some progress can be made.
LightSquared spent the spring and early summer casting around for various solutions to its GPS interference issues in the form of a direct “spectrum swap”, but with little success. However, since publication of the PCAST report, LightSquared appears to have reformulated its proposal as a deal under which it would become the “poster child” for sharing government spectrum as recommended by PCAST, in exchange for accelerated action by the FCC to implement receiver standards within the L-band. LightSquared would then build its terrestrial network initially using shared spectrum, and subsequently move into the lower L-band spectrum in a few years time. The practicality of all this is still to be seen, not least in terms of the timeline for any use of the L-band. However, the proposal appears to be attracting serious consideration within the FCC, and the forthcoming TAC report on receiver standards should provide some guidance as to the likely way forward. Thus the scene appears to be set for a resumption of last year’s battle, and those in the GPS industry who thought the LightSquared issue had been resolved, will need to steel themselves for yet another bitter fight.
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