02.07.12
Posted in LightSquared, Operators, Regulatory, Spectrum at 10:18 pm by timfarrar
So the Looney Tunes cartoon (think Wile E. Coyote) that has been LightSquared over the last year appears to have finally run its course, with LightSquared today effectively conceding defeat by asking the FCC to initiate what will inevitably be a multi-year receiver standards proceeding (followed by an even longer transition period for any such standards to come into effect). Today’s press conference was called at very short notice and appears to have happened in response to the impending release of the NTIA’s report and recommendations, which are also likely to call for an investigation into potential future receiver standards and indicate that LightSquared should not be allowed to operate its terrestrial network in the meantime.
Rather than waiting until March for comments on LightSquared’s Petition for Declaratory Ruling, the FCC now appears determined to clean up any loose ends and get this issue off its plate as soon as next week, before Congressional hearings into the procedures it followed in granting the LightSquared waiver get underway. Indeed the FCC Chairman stated after the Public Notice was issued on Jan 27 that the Petition for Declaratory Ruling would not affect the timeline for the FCC’s next steps. It therefore wouldn’t be unreasonable to suppose that LightSquared may have been given a strong hint that by asking for a receiver standards proceding themselves they could avoid a harsher ruling from the FCC mandating such a proceeding.
Of course, the FCC may also be looking to deflect attention from its own release of some documents in response to the numerous Freedom Of Information Act requests that have been filed. Buried in this release are numerous damaging documents which raise questions about the apparent coordination of LightSquared’s November 2010 waiver request with FCC staff prior to it being filed (and incidentally disclose LightSquared’s pricing plan of $6 per Gbyte for terrestrial capacity and $10 per Mbyte for satellite capacity, as well as the overall planned system capacity of 2800 Tbytes per hour terrestrially and 100 Gbytes per hour via satellite) which led to it being put out for comment immediately. It is also unclear whether this meeting with LightSquared on November 16 was disclosed in any ex parte filing. Indeed LightSquared had also been discussing with the FCC a change to their business plan to only launch one satellite, which has never been disclosed publicly (except in one accidental comment that I blogged about at the time).
However, potentially even more damaging are documents related to the conditions imposed on LightSquared (then SkyTerra) as part of the Harbinger transfer of control proceeding which led up to the FCC Order in March 2010. As part of these conditions, SkyTerra agreed not to lease spectrum or more than 25% of its network traffic to AT&T and Verizon, which met with a furious reaction from those two companies, who described this restriction as “manifestly unwise and potentially unlawful“. After AT&T and Verizon filed petitions for reconsideration, enquiries from Congress prompted the FCC Chairman to write a letter asserting that these were “voluntary commitments [Harbinger] made” (as opposed to something the FCC imposed). That was always a very suspicious assertion, given it is hard to see why Harbinger would have wanted to limit its ability to do a deal with AT&T or Verizon.
The FCC’s FOIA releases in fact confirm that Paul de Sa at the FCC appears to have initiated the discussion of conditions “on build out and wholesale agreements…to ensure the public interest benefits of the build out” in November 2009 and he apparently was responsible for drafting the written version of these conditions (in an internal FCC meeting) after meeting with Harbinger (again apparently with no ex parte filing) and persuading them to sign off in late January 2010. With this background now revealed, its hardly surprising that Sen. Grassley has a lot of questions he wants to ask, which presumably should relate not only to the January 2011 waiver, but also to the March 2010 transfer of control.
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01.27.12
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 2:23 pm by timfarrar
Today, the complexities of both the LightSquared and DISH regulatory processes both got even more messy. In the DISH waiver proceeding, AT&T filed an ex parte submission urging the FCC to impose buildout conditions on DISH similar to those imposed on LightSquared (260M POPs within 5 years 9 months), rather than any financial clawback to address the increase in value of the spectrum that a waiver would produce. AT&T also asks for conditions to be imposed on DISH’s 700MHz spectrum in line with the conditions imposed on AT&T’s recent purchase of spectrum from Qualcomm.
This submission is a blatant attempt by AT&T to put a thumb on the scales, as the FCC weighs up the appropriate balance between buildout mandates and clawback of any windfall. The reason for AT&T’s action at this very late stage in the process appears to be that DISH is trying to play off AT&T’s prospective bid against a potential venture with MetroPCS. MetroPCS would certainly be unwilling to commit to a 260M POP buildout, so if the FCC conceded AT&T’s demands, they would be the only game in town and DISH would lose its leverage in price negotiations. We’ll find out soon enough if AT&T’s gambit succeeds, but few would bet against Charlie Ergen’s poker playing skills after the events of the last year.
In the even more complex LightSquared process, the FCC has today issued a Public Notice establishing a Pleading Cycle in respect of LightSquared’s December 2011 Petition for Declaratory Ruling, which sought to establish that GPS receivers were not entitled to interference protection. This Pleading Cycle, with comments due by Feb 27 and replies by March 13, almost certainly pushes back an FCC ruling on the LightSquared testing into the second half of March, because the FCC would want to deal with all of these issues simultaneously. As a result, attention is now likely to be focused around April 1 (appropriately enough All Fools Day), when LightSquared is due to make the next interest payment on its debt and another ~$30M payment to Inmarsat.
The most intriguing issue in the Public Notice is the FCC’s subtle attempt to decouple the resolution of GPS interference from LightSquared’s January 2011 waiver, suggesting that any provision of the “terrestrial portion of service” is subject to the “Interference-Resolution Process” which “to date…has not been completed”:
On January 26, 2011, the International Bureau granted LightSquared Subsidiary LLC (a subsidiary of LightSquared Inc., hereinafter also referred to as LightSquared) a conditional waiver of the ATC “integrated service??? rule, thereby establishing certain conditions that LightSquared must meet before it can provide the terrestrial portion of service contemplated by its proposed integrated satellite and terrestrial 4G wireless network. The Conditional Waiver Order prescribed an Interference-Resolution Process by which LightSquared would work with the GPS community to resolve concerns raised about potential interference to GPS receivers and devices that might result from LightSquared’s planned terrestrial operations. As a condition of commencing such commercial operations, the Conditional Waiver Order required that this process first be “completed,??? a term defined as the point at which “the Commission, after consultation with NTIA, concludes that the harmful interference concerns have been resolved and sends a letter to LightSquared stating that the process is complete.???
The reason for this is because LightSquared has indicated that, in the event it was blocked from operating, it would withdraw the January 2011 waiver application and claim it had the right to operate a dual-mode (satellite-terrestrial) service under the conditions of the FCC’s 2005 rulings. While that might not be economically viable (or practical), the FCC would presumably then be forced to step in to protect GPS and thereby supposedly “infringe” on LightSquared’s claimed “property rights”. The Petition for Declaratory Ruling is also an attempt to eviscerate the interference protections contained in the 2005 rulings (referred to as CFR 25.255) and thereby make the supposed infringement of LightSquared’s rights all the more obvious.
Thus, from this Public Notice, it does appear that the FCC is at least cognizant of LightSquared’s legal strategy, and is likely (as I predicted) to ultimately rule that the Interference-Resolution Process should be prolonged (and extended to cover GPS receiver/interference standards) and that in the interim LightSquared will be prohibited from commencing any terrestrial operations. LightSquared is apparently contending that this wouldn’t constitute a MAC on its debt covenants, but I suspect that’s an argument some of the debtholders (including Mr. Icahn) will want to test in court.
All this makes for a very complicated set of legal arguments, but one additional piece of information did emerge today that sheds some light on the big picture of why it has been so hard for spectrum holders to monetize their assets, and why the FCC has come in for so much well deserved criticism. DSL Prime is reporting that growth in mobile data usage is running at less than half the level predicted by Cisco and that the FCC staff “demanded their name be taken off” the FCC’s October 2011 demand forecast, because they “didn’t believe the claims in this paper”. However, with so many gullible journalists and investors buying into the idea of a (manufactured) “spectrum crisis” rather than a “spectrum bubble“, perhaps its a bit less surprising that LightSquared has been able to raise over $2.5B of investment in the last 18 months.
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01.24.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 8:53 pm by timfarrar
After some uncertainty, it appears that LightSquared’s debtholders are gradually coalescing around Mr. Icahn’s view that they should invoke the MAC clause in the debt covenants and force LightSquared into bankruptcy immediately after an unfavorable FCC ruling, assuming that comes in the next couple of weeks. The key reason for this would be that LightSquared is due to pay Inmarsat $56.25M on February 18 (18 months after LightSquared gave the Phase 1 notice to Inmarsat under their Cooperation Agreement) and that sum of money is potentially big enough to make a material difference to the ultimate recovery, assuming that a liquidation is the eventual outcome of the bankruptcy case.
As debtholders get increasingly angry about this debacle, it also seems that they are looking around for other people to sue. Interestingly, it was suggested to me that (in addition to Harbinger) one potential target would be UBS, because the extent of the GPS interference problems may not have been disclosed fully at the time of the $586M February 2011 debt offering (UBS were the arrangers for this loan).
I for one had already blogged about the potential extent of the GPS interference issues in January 2011, based on testing that I had been told about by a major equipment manufacturer. In that case the engineers were so astonished by LightSquared’s proposed power levels that they brought in their personal car and handheld GPS receivers and noted considerable interference many hundreds of meters away from the test transmitter. In particular, it was pointed out to me that third order modulation interference into the middle of the GPS band was essentially an unsolvable problem under LightSquared’s original 10L and 10H configuration.
As a result this company had already concluded that (at the very least) use of the upper band spectrum was infeasible, well before the loan was sold to investors, and it can hardly have been long after that before LightSquared started negotiating with Inmarsat over the revised spectrum plan which was signed on April 25. Indeed my discussions with many knowledgeable people in mid-March (at the Satellite 2011 conference) indicated that everyone (including people with connections to LightSquared) already believed that use of the upper band would never be feasible (Note: the Field of Dreams reference in this link is still my all-time favorite – so thanks again to the unnamed satellite industry executive who noted the Chisholm, MN connection).
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01.20.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 5:24 pm by timfarrar
This evening Reuters is reporting that Mr. Falcone is examining “the potential for selling [LightSquared's] right to certain spectrum leases” to “raise cash for his financially strapped telecom start-up”. Those leases are presumably the 8MHz of 1.4GHz spectrum that LightSquared leases from TerreStar Corp and the 5MHz of spectrum at 1670-75MHz that is leased from Crown Castle. However, its hard to see how LightSquared could raise any meaningful amount when any buyer would have to take over the underlying lease obligations ($24M per year for the TerreStar spectrum and $13M per year for the Crown Castle spectrum) and there is no clear buildout plan for either band. Indeed LightSquared had not even planned to include the 1.4GHz spectrum in its LTE network, instead entering into an agreement with Airspan Networks in August 2010 under which Airspan would “exclusively market LightSquared’s 1.4 GHz wireless spectrum” to the utilities industry as “a comprehensive solution for Smart Grid and Smart Utility applications” (though with no visible success to date).
Other news emerging today is that I’m told the NTIA plans to release its report on the November 2011 testing next week, presumably accompanied (concurrently or very shortly thereafter) by its recommendations to the FCC. It appears that the NTIA will back the PNT Excom recommendations (most likely including that there should be no further testing at this time and that there should instead be a consultation on GPS receiver standards), and it could hardly do otherwise, given that the test procedures criticized by LightSquared were specified by NTIA in the first place. Remember also that last August Mr. Strickling believed LightSquared was “in Wonderland” in thinking it could move forward after the initial test results came out.
I’m also told that LightSquared is trying very hard to pressure the FCC to overrule the NTIA, and order that the high precision testing should start within the next two weeks. However, that hardly seems plausible given the political firestorm that would be ignited by a public disagreement between the FCC and NTIA. Messrs. Genachowski and Strickling will be in Geneva this weekend for WRC-12 and it sounds like they will be very busy trying to avoid that situation. As a result, we might well see the same outcome as in September, when the release of the NTIA letter was followed very quickly by an FCC response (which in that case was to adopt the NTIA recommendation). It definitely looks like next week will be a very busy one, so follow me on Twitter @TMFAssociates for all the latest information.
UPDATE (1/22): It appears that the NTIA recommendations letter will have to wait for Mr. Strickling to return from Geneva, so we may not see it until the week of Jan 30. I also now expect the FCC to order a (pretty lengthy) GPS receiver standards rulemaking, which will allow for further testing and debate on when the lower band spectrum might be useable for terrestrial services (think 2020 or thereabouts, though we won’t have any definitive transition timeline until 2013 or even 2014) and conveniently put off any decision until after the November election. Of course, because LightSquared will be unable to operate its terrestrial network in the meantime (almost certainly a MAC for its loan covenants), that will likely set off a major battle amongst the debtholders about what to do next, with Mr. Icahn likely to try and force LightSquared into bankruptcy in the near future, while some other debtholders might be more supportive of Mr. Falcone if they still believe he can see this process through.
Assuming that the FCC did agree with the NTIA and stated that it was prohibiting LightSquared from commencing terrestrial operations for the foreseeable future, the most interesting question will be the grounds for its legal authority in doing so. LightSquared has indicated that it would withdraw the waiver request in these circumstances, and that it believes this would render the condition (requiring GPS interference concerns to be resolved) imposed in the January 2011 order null and void. In that case, the FCC would probably have to fall back on the authority that the GPS industry (plus others such as CTIA) have asserted all along (and LightSquared has challenged, most recently in its Dec 2011 Petition for Declaratory Ruling), that CFR 25.255 (“If harmful interference is caused to other services by ancillary MSS ATC operations, either from ATC base stations or mobile terminals, the MSS ATC operator must resolve any such interference”) provides absolute protection against LightSquared being permitted to cause harmful interference. In that case we could expect to see LightSquared launch legal action very quickly, in line with the position adopted in its December petition.
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01.19.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:21 pm by timfarrar
Last week I expressed the view that LightSquared’s new investors could very well prolong the fight between LightSquared and the GPS industry. However, signs are starting to emerge that the FCC might be more willing to act than I had anticipated, and rule against LightSquared, which would potentially create a Material Adverse Change (MAC) in LightSquared’s first lien debt covenants, allowing the new investors to force the company into bankruptcy, and wrest control from Harbinger. While I still believe that the end game will involve liquidation of the business (not to mention litigation against all and sundry), the current debt investors would certainly benefit if they didn’t have to wait until all of LightSquared’s money had been spent in advance of a bankruptcy filing.
What evidence is there of a shift? Firstly the FCC responded very quickly to LightSquared’s assertions that the recent testing was “bogus” with a statement that:
We are awaiting completion of recommendations from NTIA. As we have said from the outset, the FCC will not lift the prohibition on LightSquared to begin commercial operations unless harmful interference issues are resolved.
Of course that is not what the FCC has said from the outset. Last year they said the agency won’t let LightSquared activate its network “until harmful interference issues are resolved”. Though subtle, that is quite a change in position, and an acknowledgement that the interference issues might not be resolvable.
More importantly, today has seen the resignation of a second high ranking FCC official and now both Ed Lazarus and Paul de Sa, who apparently negotiated the deals with SkyTerra (in early 2010) and LightSquared (in late 2010/early 2011) are leaving the FCC at a time when Sen. Grassley is shortly expected to receive details of LightSquared’s communications with the FCC. Indeed these two officials also met with Mr. Falcone when he visited the FCC on January 4.
To misquote Oscar Wilde, to lose one official may be regarded as a misfortune, to lose both looks like carelessness. If (and I do mean if) there is something problematic to emerge from the communications between LightSquared and the FCC, then it would certainly help to defuse the ensuing political firestorm if the FCC had already acted on the recommendations of the NTIA (which I think will very likely follow those of the PNT Excom). Communications Daily is now reporting that the NTIA has received the full report from the PNT Excom and will now review it and “eventually” advise the FCC how to move on the issue. However, if high precision testing is not going to be undertaken in advance of formulating these recommendations, the FCC could be in a position to rule relatively soon.
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01.18.12
Posted in LightSquared, Operators, Regulatory, Spectrum at 12:15 pm by timfarrar
Well it seems like all LightSquared has left now is an attempt to claim that the US government is biased against it, representing a remarkable turnaround from this time last year, when most people thought that any favoritism was going in the opposite direction. However, it appears that LightSquared’s protests are going to have absolutely no effect, because all of their allegations about how the testing was not “fair and accurate” simply reflect the NTIA’s own mandates for how the testing should be conducted.
Firstly LightSquared claim that considering a 1dB interference degradation threshold was a sign that “the testing was rigged“. However, the NTIA Administrator, Lawrence Strickling, specifically set out in his memo of September 9 requiring this round of additional testing that:
We want to do what is necessary so that our recommendations to the FCC regarding cellular and personal/general navigation GPS receivers can be conclusive and final. To that end, I want to make it clear that our recommendations will be based on NTIA standard definitions and methodologies for assessing interference. We will not accept conclusions or analysis based on propagation models and other tools that depart from our standard methodologies.
Of course the “standard definition” as agreed for the June TWG report was 1dB of degradation, and it was only when LightSquared discovered that the June results were unfavorable that they came up (at the last minute) with their alternative proposal of allowing 6dB of interference degradation, which was never accepted by the NTIA.
Secondly, the Sep 9 letter requested that “that the test plan include a retest of the 10 devices that were shown by the TWG testing to be more susceptible to the lower 10 MHz scenario”. Thus it was at Mr. Strickling’s explicit request that the testing “deliberately focused on…devices that were least able to withstand potential interference”.
Finally the tests were “shrouded in secrecy” because they involved technical performance data on individual GPS devices which both the FCC and NTIA agreed to keep confidential. The same procedure was used in the first round of tests in order to avoid data being released on individually identifiable devices and it is far from clear what LightSquared is alleging was done differently this time. Indeed, with the most “susceptible” of the previously tested devices being included in the second round of tests, it would have been necessary to keep the list of tested devices confidential in order to avoid revealing which these “susceptible” devices were.
It therefore seems clear that by LightSquared’s definition Mr. Strickling himself would count as one of the “government end users [who] manipulated the latest round of tests to generate biased results”. That doesn’t seem like a recipe for success when you are asking the NTIA to “objectively re-evaluate this initial round of testing” and ignore the recommendations of the PNT Excom.
What I find even more surprising is that LightSquared was briefing its investors as recently as Tuesday last week that everything was “under control” with respect to interference, when their letter to Mr. Strickling on Friday Jan 13, after the PNT Excom letter was released, noted that:
LightSquared has communicated its concerns repeatedly to PNT EXCOMM, NPEF and Air Force Space Command throughout this process, both verbally and in correspondence. All of these concerns have been seemingly disregarded. As you are aware, we have also corresponded with your office to make sure you were advised as the process unfolded.
In addition, the letter states that the FAA had “unilaterally decided to suspend any further collaboration” with LightSquared. These two statements are very hard to reconcile with LightSquared’s briefing to investors that the interference issues were “under control”, which was the reason that new investors became involved with the company. As a result, these (and other) investors might now feel that its not only LightSquared’s (currently invisible) CEO who is lacking in credibility. There was certainly a rush for the exits yesterday, with prices on LightSquared’s first lien debt opening with a markdown of ~9 cents to 40-44 cents on the dollar, and then falling further to 38-42 cents during the day.
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01.13.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 4:53 pm by timfarrar
As I indicated in my post on Thursday last week, the PNT Excom has recommended today, in a letter sent to the NTIA Administrator, that the high precision testing be put on hold, because “there appears to be no practical solutions or mitigations that would permit the LightSquared broadband service, as proposed, to operate in the next few months or years without significantly interfering with GPS”.
This letter confirms that it will be impossible for LightSquared to move forward with its buildout plans in the foreseeable future. However, in the absence of any final decision from the FCC or NTIA, it seems unlikely that LightSquared will change its current course of pursuing approval by all possible means, for as long it has the money to do so. As a result, it may still be many months before this saga reaches a definitive conclusion.
The primary reason for my belief that this will drag on for many months is that Harbinger’s position in LightSquared’s capital structure (subordinate to at least $1.6B of debt) makes it inconceivable that Harbinger would receive any recovery in a bankruptcy situation, and the first lien lenders are unable to stop LightSquared simply continuing to spend the current cash on LightSquared’s balance sheet for as long as it lasts. The only exception would be if a Material Adverse Change (MAC) occurred under the terms of LightSquared’s first lien loan, which could allow the lenders to issue a notice of default before the money is gone. However, it is hard to imagine that a MAC could have occurred solely as a result of an advisory committee’s recommendation and even if a response was to be issued by the NTIA in the near future, it is far from clear that a triggering event would have occurred.
Nevertheless, this news does make it clear that my expectation about the ultimate outcome of a LightSquared bankruptcy (namely that no terrestrial network will ever be deployed) is rather more plausible than the assumptions made by Icahn and other new investors that they could ultimately force through an approval. They must feel pretty upset that LightSquared was assuring them as recently as Tuesday that the technical issues had been solved (despite LightSquared apparently being unable to offer any “practical solutions or mitigations” to the problems identified in the November tests) and that it was only the politics of the situation that were preventing the FCC from approving their network.
UPDATE: This presentation was also posted by NOAA on Friday, giving more details of the November 2011 testing. Apparently these tests did include some high precision devices, which were badly affected by the LS lower 10 signal, even at very low operating power levels. As a result, NOAA conclude that a new filter will be required for these devices, and that is presumably one additional reason why LightSquared’s latest “power on the ground” proposal was not deemed to be a “practical solution”.
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01.11.12
Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 3:05 pm by timfarrar
Yesterday, LightSquared held an investor call to provide an update on regulatory progress, including Mr. Falcone’s meeting last week at the FCC (which failed to gain the attention of the FCC Chairman, unlike Mr. Ergen’s visit to the FCC the same day). LightSquared’s investors clearly want to know whether there is any prospect of approval being granted, and a Debtwire story on Jan 3 reported that some of the previous investors have lost confidence in a successful resolution of the issue:
Farallon Capital Management dumped its stake in LightSquared’s USD 1.6bn first lien loan last month as the telecom company and sponsor Harbinger Capital battle regulatory controversies, according to two buyside sources and a source familiar with the matter. Displaying a greater taste for potential distress, Icahn Enterprises has emerged as a recent buyer of LightSquared’s bank debt in the low 40s, the two buyside sources said.
The exit of Farallon signals the loss of one of LightSquared’s former anchor investors. The California hedge fund was one of the biggest par holders in LightSquared’s capital structure, owning more than USD 150m of the Libor+ 1,200 bps term loans the company raised to finance the build out of the its 4G long term evolution (LTE) network, the sources said.
The loans were recently quoted at 43-45 from 90-92 at the beginning of August, according to Markit.
However, I understand that the new investors, including Icahn, haven’t stopped believing that they will be able to overcome the opposition of the GPS community, and ultimately gain approval on the back of (what was described to me as) their greater “sophistication” and financial resources compared to Harbinger. Indeed, part of Mr. Falcone’s objective in his FCC meeting may have been to suggest that the FCC would have to deal with less cooperative owners of the assets in the future, if they delay approval and allow LightSquared to fall into bankruptcy.
Its suprising that anyone could believe that they will succeed where Harbinger has failed, especially as the NTIA now appears determined to spin out the testing process for as long as possible (and almost certainly to beyond the November 2012 election). In addition, it would be easy for the FCC to initiate a (multi-year) rulemaking proceeding on receiver standards for GPS receivers, if they want to kick this issue even further into the long grass. Nevertheless, the implications are that LightSquared’s debt investors are likely to allow the company to keep pushing for approval, rather than trying to force it into bankruptcy more quickly in order to liquidate the assets before all the cash is gone. That would suggest a bankruptcy filing later in the second quarter rather than in the next couple of months.
Ultimately, I think this will look a lot like the Iridium bankruptcy in 1999, where investors thought there was something worth billions of dollars that could be rescued with a bit more money and better execution, and spent nine fruitless months before they finally conceded that $5B of investment needed to be completely written off. The fundamental reason why I think their efforts will fail is that the continuing lease payments to Inmarsat ($115M per year) very likely outweigh the value of 20MHz of L-band spectrum, which at best might be usable terrestrially in 5-10 years time (if approval was even granted).
At this point there is no way that Inmarsat is going to compromise on these lease payments, because the whole LightSquared affair (which Inmarsat enabled through the 2007 Cooperation Agreement) has deeply upset the DoD, which accounts for ~20% of Inmarsat’s total revenues (and probably an even higher proportion of the Global Xpress business plan). Indeed, some within Inmarsat might feel they would give back the money paid to date, if only the whole LightSquared mess could be made to go away. Inmarsat already appears to be telling the DoD that it was not their fault, because they were ordered by the FCC (under a Republican administration) to enter into the Cooperation Agreement, against their better judgment. In that context, Inmarsat’s protests in January 2005 that approval of the ATC plans proposed by LightSquared (then MSV) would lead to substantial degradation of MSS services due to overload interference, now appear very prophetic.
As a result, I expect the end game (which is now unlikely to be reached before 2013) to involve a combination of trying to recover the money paid to Sprint and not spent on deployment, selling the ground spare to Boeing, and agreeing to sell Inmarsat the in-orbit satellite and spectrum assets in exchange for a return of a sizeable proportion of the ~$500M paid to date. Whether that will be sufficient to provide downside protection to buyers of LightSquared’s first lien debt (totalling ~$1.6B) “in the low 40s” remains to be seen.
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01.05.12
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 4:49 pm by timfarrar
Over the last couple of weeks a steady drumbeat of negative reports have emerged about LightSquared, including that it is “running out of cash“, that the National Defense Authorization Act (NDAA) has “stack[ed the] deck against LightSquared” and now that Sprint has put its investment in the partnership with LightSquared “on hold”. Indeed the FCC Chairman reportedly even joked at a December dinner that “LightSquared has two tables…A quick note from the Hilton staff – those of you sitting at the upper table will need to vacate the table, and those of you at the lower table are still too loud.”
However, I’m told that even more damaging information is likely to emerge shortly, indicating that the NTIA’s planned testing of the compatibility of high precision GPS devices with LightSquared’s network has been put on hold. This testing was supposed to take place in the near future (perhaps as soon as this month, although a more realistic timetable was spring 2012). It was reported in December that LightSquared had not yet provided the filters for this testing program and it is unclear whether this is a contributing factor in the decision, or if the NTIA has simply decided that it is not worth expending resources on the testing until the issues revealed in December about the interference with general purpose navigation devices and an aviation terrain avoidance system have been addressed. It seems that the full details should be forthcoming once the NTIA sends its formal report and recommendations from the December 14 meeting to the FCC.
UPDATE (1/6): When FierceWireless asked the NTIA about this blog post, their spokesperson indicated that “federal testing has not yet begun on high-precision devices. We won’t speculate further on timing other than the fact that it would be appropriate for the high-precision testing to take place after the analysis of the location-based/navigation device testing is complete.” This certainly appears to be a change in stance from the September 9 letter from the NTIA to the FCC, which stated “At that time [when LightSquared presents its filtering solution for testing and evaluation], the federal agencies will need to develop and execute a plan to test and analyze LightSquared’s proposed mitigation”, because LightSquared certainly believes it has already “presented” its proposed solution to the Federal agencies for testing and evaluation. Separately, another source has confirmed to me that there is no agreed timeline or funding for the high precision and timing testing, especially given recent cuts in the FAA budget.
As an aside, the Reuters article on LightSquared’s finances appears to broadly confirm my assessment that LightSquared is likely to run out of money by the second quarter of 2012. In view of the net loss of $427M in the first three quarters of 2011, it also seems that my estimate of LightSquared’s cash burn rate is in roughly the right range. However, I’m told by another source that my supposition that LightSquared might not have repaid the Boeing vendor financing is incorrect, and that in fact, as LightSquared has stated, the company has raised “over $2.5B in debt and equity” (at least $150M more than I had estimated), which accounts for this discrepancy. Indeed, with the Boeing loan repayment only being $120M, LightSquared’s cash burn over the last two years must have been even more than I had projected.
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12.22.11
Posted in General, Regulatory, Spectrum at 9:15 am by timfarrar
As my article yesterday for GigaOm highlighted, the potential ripple effects of an AT&T/DISH deal are almost too numerous to mention. However, in addition to the political consequences, its also worth considering the implications of this potential industry realignment for the US spectrum market. As I’ve noted before, spectrum didn’t look like a good investment a year ago, and while the cable companies have come out OK (based mainly on their smart bidding strategy in the 2006 AWS auction), companies like Clearwire and NextWave who have bet on more speculative spectrum bands have suffered badly from a lack of buyers for the spectrum they’ve tried to sell. Even DISH faced little or no opposition from major wireless operators in its acquisition of DBSD and TerreStar’s spectrum assets.
Now, if deals between AT&T/DISH and Verizon/SpectrumCo go through, network sharing will create significant bandwidth efficiencies and with only two national LTE networks there will be even less competition in future spectrum auctions. That could well mean that incentive auctions will come to naught, because it will not be possible to generate high enough bids to persuade broadcasters to give up their spectrum (although that probably won’t prevent Congress eventually passing a bill so it can count imaginary future revenues against the deficit and/or D-block buildout).
In the near term, it also means that it will be difficult if not impossible for Clearwire to find eager bidders for the portion of its spectrum holdings it would like to sell (at anything from $0.25 to $0.75 per MHzPOP according to its recent roadshow). Indeed I’ve been told that the only offer to buy spectrum from Clearwire (during its efforts to sell spectrum earlier this year) came from Sprint, and its far from obvious that enough has changed to justify the recent speculation about new near term Clearwire partners/spectrum buyers ranging from MetroPCS to DirecTV.
As an aside I also find it hard to see how DirecTV’s involvement in a 2.6GHz TD-LTE venture in Brazil, which is focused on fixed wireless broadband in residential suburbs, just like Clearwire’s original fixed WiMAX business plan, has much relevance to Clearwire’s current small cell mobile data roaming plan in core urban hotspots. In theory DirecTV could buy Clearwire spectrum to deploy its own separate fixed wireless broadband network in the US, with a completely different cell spacing than a mobile network would require, but that hardly seems a productive use of capital when the US has vastly better fixed broadband infrastructure than Brazil and we’ve just seen the ignominious collapse of Open Range, which was trying to execute such a plan in rural areas, with subsidized loans from the USDA. As I’ve said before, fixed broadband is by far the best way to go for almost all in-home data delivery, and so I think that ultimately DirecTV will have to reach some agreement to use AT&T’s wireline infrastructure, completing the alignment of AT&T with the satellite TV companies against Verizon and the cable companies.
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