12.20.11
Posted in Financials, Regulatory, Spectrum at 9:35 am by timfarrar
Stifel Nicolaus’s note on DISH is getting a lot of attention in the press today, with DISH shares sharply higher on the news. Of course, if you’d read this blog, you would have seen all the salient points of their note in my post last week, including:
- how the “windfall” issue could be avoided “through an agreement to reimburse the government if the adjacent AWS spectrum sells for a higher price in a subsequent auction”
- why the FCC would “want to address both deals simultaneously…to extract matching commitments for…the wholesale access conditions needed to ensure that other wireless operators such as T-Mobile remain viable”
- why AT&T “needs to find additional clean paired spectrum for Carrier Aggregation with the 700MHz unpaired downlink…outside the 700MHz band”
- and why AT&T “will have to buy the whole company, not just the spectrum”.
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12.16.11
Posted in Regulatory, Spectrum at 6:29 pm by timfarrar
It seems like a lot of readers agree with my sentiments that an AT&T takeover of DISH is inevitable, and the only question is timing. In that context, this week’s ex parte filing by DISH is particularly intriguing, not just for the multiplicity of lawyers present, but for the omission of DISH’s recent refrain that “any so-called ‘windfall’ concerns raised in the record are entirely unfounded”.
That implies to me that a deal on the waiver conditions was likely negotiated and agreed at this meeting, potentially setting the scene for an announcement by the FCC at the end of next week. That would give Mr. Ergen a much more welcome holiday card than Mr. Falcone, and keep AT&T even busier over the holidays.
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12.13.11
Posted in Regulatory, Spectrum at 7:42 pm by timfarrar
After the Verizon-SpectrumCo deal that represents “the end of the world as we know it” it has been very surprising how little attention has been paid to the nearly inevitable consequence, namely an AT&T purchase of DISH. With the SpectrumCo deal, Verizon has not only gained a greatly increased block of spectrum in the AWS band for the next stage of its LTE buildout, but has also aligned with the cable companies, as their “out of region” partner for TV service. In response, AT&T not only needs to come up with an alternative source of spectrum, now the T-Mobile deal is as good as dead, but is all but certain to align with satellite TV as their equivalent out of region video offering.
From a spectrum point of view, AT&T obviously needs to buy DISH’s 700MHz E-block spectrum (to give it a clean 12MHz unpaired block when combined with the spectrum it is purchasing from Qualcomm). Less obviously, it also needs to find additional clean paired spectrum for Carrier Aggregation with the 700MHz unpaired downlink. This needs to be outside the 700MHz band to avoid interference with AT&T’s existing LTE network, but AT&T will have to give up most of its AWS spectrum holdings (originally intended to be used for this aggregation pairing) to T-Mobile as part of their breakup fee. Of course at this point in time, the only spectrum that could realistically be used for this purpose is DISH’s 2GHz MSS spectrum (from DBSD and TerreStar), subject to securing a waiver of the ATC gating criteria from the FCC.
By approving the Qualcomm spectrum purchase the FCC appears to be giving AT&T a pretty direct signal to abandon the T-Mobile acquisition in favor of a deal with DISH. DISH is signaling with the suggestions that it has other options (like a deal with T-Mobile or Sprint) and that it is not interested in selling the spectrum, that AT&T will have to pay a high price and will have to buy the whole company, not just the spectrum. And AT&T has just been told by the judge in the DoJ’s antitrust case to go away and decide what it wants to do by January 12.
So now the big question is whether the FCC will take the obvious next step and grant DISH a waiver on Christmas Eve, leaving them to negotiate a deal with AT&T over the holidays. There would have to be a creative way to overcome the windfall issue (probably through an agreement to reimburse the government if the adjacent AWS spectrum sells for a higher price in a subsequent auction), and time is pretty short, but if the FCC wants to process both a Verizon-SpectrumCo and an AT&T/DISH deal in parallel before the election, then action is needed pretty imminently.
The reason that the FCC would want to address both deals simultaneously is that it would be the best (only?) chance to extract matching commitments for near universal (97%-98%) deployment of two competing LTE networks along with the wholesale access conditions needed to ensure that other wireless operators such as T-Mobile remain viable and have access to these networks in the future. Verizon has already struck a wholesale access deal with the cable companies which it could be required to extend to other companies in the future, and presumably AT&T would agree a network sharing/wholesale access deal with T-Mobile in order to reduce the amount of the breakup fee it will need to pay. Of course, these conditions would likely only be imposed under a Democrat administration, providing another reason for the FCC to want to hurry the process along to a conclusion before the November 2012 election, rather than risk the parties potentially delaying things until they see how the election is going to turn out.
In this context, Charlie Ergen has played a masterful game of poker, and far from making the FCC “look foolish” as some have suggested, he simply makes Harbinger look foolish for having failed to do adequate due diligence on the potential problems with the LightSquared spectrum. DISH also looks good in comparison to DirecTV (which ironically has been much more highly valued by investors in recent years), by securing an exit from the satellite TV business at precisely the time that the business case for a standalone satellite TV play in the US looks ever more difficult.
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12.12.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 7:50 am by timfarrar
As I mentioned on Friday, the test results from the draft NTIA report indicated that 75% of cellular and general navigation devices suffer from harmful interference. These are the 400 million “cell phones and auto systems” which LightSquared claimed were “already compatible” with its network, based on the “new plan, which was announced in June”. Now LightSquared claims that the tests did not take into account “a critical element in LightSquared’s mitigation proposal to manage the power from its network that GPS devices will be able to receive”. However, this “power on the ground” proposal was first set out in a presentation to the FCC in early September, and was never part of LightSquared’s June proposal. That was only a day or two before the NTIA mandated this further round of tests, so it is hardly surprising that it was not considered as part of the recent testing.
It is important to note that this phase of testing related to operation solely in the lower 10MHz block of L-band spectrum at LightSquared’s revised operational power limit of 32dBW (exactly as proposed by LightSquared in June). I understand that the test criteria was a limit of 1dB increase in the signal to noise ratio (rather than the 6dB that LightSquared originally proposed but the NTIA refused to accept), with line of sight to the tower. LightSquared’s newer “power on the ground” limits proposed in September do reduce the output power below 32dBW (to as little as 21dBW, i.e. ~15 times less) on the shortest towers (because these will produce the highest interference level close to the tower). However, LightSquared also proposes to increase these power levels by 3dB (i.e. double) in Jan 2015 and another 3dB (double again) in Jan 2017, so that far more towers will be operating at the 32dBW output level tested by the NTIA. Even a tall tower operating at the full power level could have a vehicle passing nearby in line of sight to the main beam, e.g. if the tower is next to an elevated roadway.
All in all, it is certainly true to say that the government conclusions are based on conservative assessments of interference (modest impact on devices in line of sight to a tower operating at the maximum power level). However, this is understandable when general navigation devices are relied on for vehicle safety, including in light aircraft.
As an aside, I found the holiday card pictured above in Target. If you come across it, then do send a copy to Mr. Falcone (450 Park Ave, Floor 30, New York NY 10022) or Mr. Ahuja (LightSquared, 10802 Parkridge Blvd, Reston VA 20191). I’m sure you will find the message inside (“Get lost in the spirit of the season”) to be very appropriate, especially if you add your own punctuation after the second word.
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12.09.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:46 pm by timfarrar
Bloomberg now has a copy of the results from the recent NTIA testing that I noted yesterday and is reporting that “LightSquared signals caused harmful interference to majority of GPS receivers tested” and “millions of fielded GPS units are not compatible” with the planned network. The presentation goes on to conclude that “No additional testing is required to confirm harmful interference exists”. This language is particularly important because the FCC Public Notice in September requesting this further testing stated that:
This Public Notice is issued pursuant to the provision of LightSquared Subsidiary LLC’s (LightSquared) conditional Ancillary Terrestrial Component (ATC) authorization that LightSquared may not commence ATC operations until the Commission, in consultation with the National Telecommunications and Information Administration (NTIA), finds that Global Positioning System (GPS) interference concerns have been satisfactorily resolved. Following extensive comments received as a result of the technical working group process required by the International Bureau’s Order and Authorization dated January 26, 2011, the Federal Communications Commission, in consultation with NTIA, has determined that additional targeted testing is needed to ensure that any potential commercial terrestrial services offered by LightSquared will not cause harmful interference to GPS operations.
In other words, assuming this conclusion is endorsed by the NTIA at its meeting next week, the FCC would be perfectly within its rights to deem that no further testing is required to confirm that the conditions of the January 2011 waiver cannot be met and it must be revoked. Not only that, but LightSquared committed in January that “this process must be completed to the FCC’s satisfaction before LightSquared commences offering commercial service pursuant to approval of our requested modification with regard to our L-band MSS frequencies”, so it appears the FCC could potentially prevent LightSquared from offering any terrestrial commercial service at all. Though I suspect LightSquared will try to argue that this commitment is only applicable to service under the waiver, it will be hard to win that point when it was very clear from LightSquared’s discussions with the FCC and White House in January what was intended.
The FCC therefore is now confronted with a tricky decision: does it simply wait for LightSquared to run out of money, so it can try and avoid the inevitable legal action, or does it allow testing to continue, and risk the wrath of Congress (and Sen. Grassley in particular) for appearing to be supportive of LightSquared.
Coming after the SEC issued a Wells Notice to Harbinger Capital this morning, and Harbinger subsequently suspended redemptions from its funds, this news could hardly have come at a worse time.
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12.08.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 4:02 pm by timfarrar
Despite LightSquared’s best efforts to spin the GPS interference issue as “needlessly complex” and turning “basic engineering issues into a political debate”, I’m told that this spin is yet again doomed to fail, once the results of the NTIA tests of cellular and general navigation results are published next week.
These results were described to me as “devastating”, because far from confirming (as most people have assumed) that there is no problem with cellular and general navigation devices if LightSquared limits its operations to the lower part of the L-band, in fact a “good chunk” of these 400 million devices will suffer interference at the 1dB C/No degradation that the NTIA has set out as the maximum acceptable impact level, even if the interference is not as overwhelming as under LightSquared’s original plan.
This comes only a day after LightSquared proclaimed to the FCC that it is “well on its way to demonstrating that GPS interference issues have been resolved”. As a result, it will be interesting to see how LightSquared tries to spin its way out of this problem. Perhaps LightSquared will tell the FCC that it should ignore not only the “subjective views” of the federal agencies but all of their testing as well?
After all, surely we can rely on LightSquared’s own “independent testing” to be more unbiased than those pesky federal agencies? And I’m sure that all of those politicians taking LightSquared’s side yesterday had carefully verified LightSquared’s technical claims before speaking out on the company’s behalf. No wonder our international partners are “absolutely aghast” that we are even having to discuss this “Made in the USA” fiasco.
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12.07.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 11:49 am by timfarrar
Today LightSquared has been making a big deal about how its “independent tests” have shown that “LightSquared is well on its way to demonstrating that GPS interference issues have been resolved”. This is in line with LightSquared’s statement to the FCC on November 15, that “any determination that the federal precision and timing coexistence issue has been resolved would have to be based on objective and independent test results and not the subjective views of the federal agencies involved”. However, now LightSquared appears to have lost its backing from both the White House and the FCC (and the views of the federal agencies are pretty clear), LightSquared cannot seriously expect the FCC to change the currently defined PNT testing process, and so I think that the only place LightSquared will be trying to argue that point is in the court of public opinion, followed sooner or later by a court of law.
LightSquared also appears to be renewing the tired arguments about how its integrated satellite network can provide coverage everywhere, even quoting the Commissioner of Randolph County, GA who suggested that “this powerful new high-speed network will finally allow them to access broadband wherever they might live or work or travel”. However, LightSquared has never intended to provide terrestrial service in Randolph County, GA, as shown in this chart of planned terrestrial coverage that LightSquared presented at a conference in October 2010.
Even if its deal with Sprint comes to fruition (which now seems unlikely to say the least), LightSquared won’t provide terrestrial coverage there, because Sprint has no towers in Randolph County either.
Thus any potential LightSquared customers in Randolph County will have to rely on satellite coverage. I wonder if they realize that they will get at most 200-300kbps downlink speeds and 10-20kbps uplink speeds from a LightSquared handset? And that they will have to stand outside in an open area and make sure they know which direction the satellite is in? Even more problematically, the total data capacity for all the handsets using the SkyTerra-1 satellite anywhere in the US is roughly equivalent to the capacity of a single LTE base station. And remember that LightSquared’s wholesale partners get 500kbytes of satellite data for every Gbyte of terrestrial capacity that they buy, so they will only be allocating 1Mbyte of satellite data per month for each customer on a standard 2Gbyte terrestrial data plan (if they even sell service to customers who live outside terrestrial coverage).
UPDATE (2/9/12): LightSquared’s satellite capabilities have now been revealed in documents produced by the FCC in response to FOIA requests. The total capacity of each LightSquared satellite is stated to be 100 gigabytes per hour (222Mbps) compared to 2800 terabytes per hour on the terrestrial network (28,000 times more, or in other words the satellite capacity for all users in North America is approximately equal to the capacity of a single base station). Furthermore, LightSquared’s intended wholesale pricing for satellite data (before it was marked up by their partners) was $10 per Mbyte, or 1600 times the price of LightSquared’s terrestrial data services.
Of course I’m sure that none of the endless parade of former politicians that LightSquared has hired has any conception of the technical issues involved, so they will presumably keep touting the company right up to the point at which the money runs out and the lawsuits start flying.
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12.02.11
Posted in Financials, Regulatory, Spectrum at 12:24 pm by timfarrar
After losing an arm and a leg on their investments in Clearwire, and being utterly unsuccessful in their repeated attempts to sell wireless services, Comcast, TWC and BrightHouse have now apparently concluded that its not worth incurring any more flesh wounds in their attempts to become competitors in the wireless market and have agreed to sell their AWS spectrum holdings to Verizon. Of course, this acknowledges that smaller players will basically find it impossible to challenge the dominance of Verizon and AT&T in the US wireless market.
This deal puts further pressure on AT&T to buy DISH, if (and when?) the proposed T-Mobile merger finally falls apart. However, it leaves TMO in a much more difficult situation, with no easy way to acquire more AWS spectrum (at least prior to a future AWS-3 auction) and no potential cable partnership. As a result, the most likely outcome in my view would be for the FCC to make any AT&T/DISH purchase conditional on providing TMO and others with wholesale access to the network if the potential AT&T/T-Mobile network sharing agreement does not come to fruition.
Clearwire is also left with one less potential purchaser for its spectrum, now that Verizon has satisfied its spectrum needs for most of the next decade (and recall that T-Mobile looked at the Clearwire spectrum last year and decided not to buy any of it). Yesterday’s announcement of a deal with Sprint kicks the can down the road a little, but actually reduces Sprint’s near term payments to Clearwire, unless Clearwire is able to raise additional equity funding. However, that might be challenging in current market conditions unless Clearwire has a new potential strategic investor lined up. The obvious candidate would be China Mobile, which has a strong interest in establishing TD-LTE in the 2.5GHz band as a widely used international 4G standard (something of strategic importance for the Chinese government, given the earlier failure to ensure widespread adoption of TD-SCDMA as a 3G standard).
Another interesting factor to consider is the price paid by Verizon for the spectrum, which some are claiming “ratchets up the price of spectrum“, because SpectrumCo is making a profit on the extraordinarily low price it paid through a smart bidding strategy in the auction. In fact at $0.69/MHzPOP the price is almost identical to that paid by Verizon for its AWS spectrum in the auction 5 years ago (the quoted price then was $0.73/MHzPOP but the number of POPs is not directly comparable because the 2006 POPs were based off the 2000 census and Verizon’s stated 259M POPs for these licenses presumably relates to the 2010 census), and very likely was used as the benchmark in negotiating the value of the current transaction. In the intervening 5 years the AWS block has been cleared and has an established chipset ecosystem, thereby become much more readily usable, but Verizon is not paying any more for this spectrum. Certainly it makes recent assertions by Brattle Group that generic “unencumbered spectrum” (such as LightSquared’s spectrum with a waiver) should have a value of roughly $1.00/MHzPOP look hugely exaggerated.
UPDATE: If this really is “the end of broadband competition” as some believe, then its pretty obvious what the FCC does next, simply mandate wholesale access to Verizon and AT&T’s networks (as conditions on the purchase of SpectrumCo and DISH respectively). That enables two high capacity national LTE networks to be built and allows cable companies (on the Verizon network) and TMO (on the AT&T network), as well as smaller players, to compete for wireless customers, but leaves wholesale business plans like Clearwire and LightSquared out in the cold. Sprint gets stuck with a second rate LTE network using the spectrum (SMR, G-block, BRS/EBS) that no-one else wants.
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11.25.11
Posted in Financials, Regulatory, Spectrum at 8:34 am by timfarrar
After AT&T’s notice to the FCC that it is withdrawing its T-Mobile merger application, attention is now turning to AT&T’s alternatives for acquiring more spectrum. The FCC’s approval of the Qualcomm spectrum purchase puts the focus squarely on DISH’s 700MHz E block holdings, which would bring the Qualcomm spectrum up to a national 12MHz unpaired block. However, AT&T also needs a separate clean block of paired spectrum to implement its planned Carrier Aggregation Technology (as part of an LTE Advanced network). The original intention was to use AT&T’s AWS-1 spectrum holdings for this purpose, but AT&T would be required to give up the majority of its AWS-1 holdings (1.5B MHzPOPs out of ~2.5B MHzPOPs) as part of the break fee for the TMO merger agreement. As a result, AT&T will also now have to look for another clean block of spectrum away from the 700MHz band to enable deployment of the Qualcomm spectrum. Though this could in theory be done in the 850MHz band, it may be hard for AT&T to put together enough clean contiguous spectrum (2x10MHz?) for a near term LTE Advanced deployment, especially if the FCC’s conditions on the Qualcomm purchase mandate a rapid buildout of the spectrum.
In this context I think a much bigger deal with DISH is the only logical outcome, and that will mean either a companion purchase of DISH’s 2GHz spectrum holdings (DBSD/TerreStar) or even a takeover of DISH itself (which could complement AT&T’s U-verse service and satisfy Randall Stephenson’s ambitions to complete a major deal). Though getting FCC approval for an ATC waiver would have to be finessed (probably by offering the government some compensation for the step-up in value), this would allow the DBSD and TerreStar spectrum to be brought into use more quickly. Indeed, by designating the AT&T/TMO merger (as DISH requested), approving the Qualcomm spectrum transaction, and apparently supporting “the efficient use of spectrum without decreasing competition“, the FCC seems to be implying that this would be its preferred course of action for AT&T to take.
The outcome for a jilted TMO would certainly be more challenging, but when the Justice Department has stated explicitly in its antitrust arguments that reducing the number of national wireless operators from 4 to 3 is unacceptable, a sale to Sprint also seems to be off the table. Of course that would be a good reason for AT&T to pursue the February court case to a conclusion, because a ruling against AT&T on these grounds would also prevent a future Sprint/TMO or Verizon/Sprint merger. Instead, a spinoff and float of TMOUSA, potentially with the cable companies injecting their AWS-1 spectrum in exchange for an equity stake in what would then be a listed company, could give TMOUSA a much stronger position with roughly 50MHz of AWS-1 spectrum (used for HSPA+ in the near term) and roaming rights onto AT&T’s network.
That would leave Sprint as the Thanksgiving turkey, with no good spectrum options other than to do some form of deal with Clearwire. Ironically, with Sprint having agreed with DISH just a few weeks ago to withdraw its objections to the use of the DBSD/TerreStar spectrum, it may be hard pressed to credibly object to a deal between DISH and AT&T. Unfortunately for Sprint, it also seems that Clearwire may have increased the amount of funding it is asking Sprint to provide in the near term (as an advance against an extended capacity purchase agreement), because it is proving harder than expected for Clearwire to raise money from others (e.g. vendor financing). Whether that will be acceptable to Sprint, in an environment where it faces severe cash pressures to execute its Network Vision strategy, is unclear. It will therefore be very interesting to see what happens next Friday, when Clearwire’s interest payment is due.
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11.22.11
Posted in Regulatory, Spectrum at 10:32 am by timfarrar
Buried in the LightSquared FOIA disclosures is another very interesting (and hitherto unreported) story of Sprint’s plans to host the public safety D-block buildout, via a network sharing agreement based on the terms agreed with LightSquared. I highlighted back in June that it was strange of Sprint to mention hosting public safety (but not LightSquared) at the May 12 New America Foundation event. However, it appears that Sprint had been working in concert with the White House for several months to promote this concept, and had strong backing for this approach from Aneesh Chopra, the United States Chief Technology Officer, as recently as mid-September 2011.
Indeed it seems that a potential D-block opportunity may have been one of the items that Sprint hoped to highlight during its disastrous October 7 investor conference, but as far as I’m aware the government has not yet released the RFI on potential partnerships mentioned in the September discussion. A hosting deal may ultimately be another source of revenues for Network Vision, if the government can act soon enough on the D-block, but of course in the current political climate that is far from a foregone conclusion.
In the meantime it appears that Sprint is trying to avoid providing additional funding to Clearwire, in the hope that Clearwire will be able to meet its near term cash needs from other sources. Judging by Clearwire’s threat to not make its upcoming bond interest payment, it seems that may not be possible without an increased (and upfront) payment from Sprint. Thus, the outcome may ultimately be determined by who has the greatest amount of leverage in this negotiation. In particular, one critical factor may be whether Sprint believes Clearwire could play the @Home card, and threaten to turn off 4G service to Sprint customers after a bankruptcy filing (which would be a PR and customer relations disaster for Sprint), instead of WiMAX service continuing without interruption as Sprint asserted on October 7.
Of course, one thing that Sprint has proved time and again is that it is pretty poor at ending up on the winning side of a negotiated deal. However, it seems to be pretty poor at understanding the consequences of its actions as well, which makes it hard to predict where this will end up.
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