11.21.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 12:18 pm by timfarrar
Astonishingly, that is actually what LightSquared told the FCC last week in an ex parte meeting where “LightSquared representatives made clear 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”. Of course the entire process hangs on the “views of the federal agencies involved” and if the DoD, FAA, etc. say this can’t happen then it won’t happen.
Clearly LightSquared understands only too well that the entire federal government now views the company about as favorably as an envelope full of anthrax, but can LightSquared seriously intend to argue that its own “independent” testing is good enough and the government shouldn’t bother doing the rounds of additional tests that the PNT Executive Committee is expecting to start in the spring of 2012?
In reality that sounds more like their opening argument in the upcoming litigation (“the FCC ignored the fact that we had tested all these solutions ourselves”) than a realistic way forward, and at this point in time, its hard to imagine LightSquared has anything to lose by waiting much longer to initiate that phase of its strategy.
UPDATE: I understand that the reason for LightSquared’s comment is that they were told by the senior FCC staff in the meeting not to expect a ruling from the FCC anytime soon, because of the need for substantial further testing by the PNT Executive Committee, and there would certainly not be an announcement in December as LightSquared’s CEO was “guaranteeing” only a few weeks ago.
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11.18.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 5:29 pm by timfarrar
The documents released by Citizens for Responsibility and Ethics in Washington (CREW) from the responses to their FOIA request to the White House’s Office of Science and Technology Policy (OSTP), don’t yet provide any smoking guns about the process by which LightSquared was able to get its FCC waiver in January 2011, after applying for it one year ago today. However, the information that is currently online represents only a tiny fraction of the 13,450 responsive documents supplied by OSTP, so it is hard to tell if there is anything more significant still to emerge.
In my view, the most intriguing new document is the January 12 2011 draft of LightSquared’s commitment letter to the FCC, which states that the “industry working group comprised of participants in the telecom and GPS industries…should be lead (sic) by the Commission“, whereas in the final version of the letter this paragraph was removed (and LightSquared was ultimately appointed by the FCC to lead the Technical Working Group). This change seems to have been agreed to by the FCC in exchange for LightSquared stating that “we are willing to accept as a condition on a grant of our request the creation of a process to address interference concerns regarding GPS and, further, that this process must be completed to the FCC’s satisfaction before LightSquared commences offering commercial service”, a commitment which LightSquared’s counsel described as “an investment & customer killer”.
Perhaps more significantly, the documents also provide a very interesting perspective on how views of LightSquared evolved within the FCC, White House and NTIA between mid 2010 and summer 2011. In July 2010, Jim Kohlenberger, Chief of Staff at the OSTP, thought LightSquared’s deal with NSN was “very exciting“, while in September 2010 he kept “hearing great things” about LightSquared. By January 2011 LightSquared’s relationship with the White House was sufficiently close that LightSquared’s counsel was asking “if there’s anything NTIA can do with the press on background to calm the waters” because “Press reports…are leading to big problems with investors, present & potential, customers, Sprint, et al”.
However, as information emerged about the extent of GPS interference, that changed pretty dramatically. In particular, after the submission of the Technical Working Group report in late June, pressure from Sen. Grassley for the FCC to provide documents meant “things [were] heating up” and by early August it was clear that LightSquared would be experiencing “headwinds” because the FCC Chairman was about to throw LightSquared under the bus, with his announcement on August 9 that he would not permit LightSquared to operate until interference concerns were resolved. By August 16, even the NTIA Administrator was indicating that any suggestion by LightSquared that they discuss how to move forward meant that “LightSquared is in Wonderland” (ironically a comparison that I also remarked on). Then in mid September, it became clear, after the FCC’s Public Notice mandated further testing, that everyone in government (and apparently the FCC) would “distance” themselves (exactly as I predicted), telling a Harbinger representative that “I must ask that you stop communicating with me regarding the LightSquared matter.”
Once this timeline and the current attitude of key people in government is understood, it becomes evident how truly dire LightSquared’s prospects are. Simply put, there is now no chance whatsoever that there will be any positive ruling from the FCC (or even an end to the testing, which can be prolonged almost indefinitely if the government insists on testing LightSquared devices as well – indeed the FAA presented a timeline yesterday with potentially multiple stages of further testing, including handsets, beginning in the Spring of 2012), and it is simply a question of wondering when the money all runs out.
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11.10.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:07 am by timfarrar
So apparently yesterday’s PNT Advisory Board meeting was “a watershed moment” for LightSquared, because “the GPS interference issue can be solved” and “the entire debate has turned from whether there is a solution to who pays for it”. Of course, that’s a massive oversimplification of reality, because as the introductory presentation to the meeting set forth, there are vast amounts of testing still to perform. In particular, the latest PNT newsletter has confirmed that LightSquared’s proposed solution for precision devices will not be tested until at least “early 2012″.
However, what no-one seems to have picked up on is that in LightSquared’s semi-annual progress report, filed with the FCC on October 31, the company confirmed that it is ignoring the FCC mandated timeline (from the January 2011 waiver) to make devices available by September 30, 2011 and now has postponed the anticipated availability of “embedded modules, USB data modems and other devices” from BandRich and AnyData until “late 2012″. While LightSquared still expects Qualcomm to make chipsets available in “late 2011″ that could “facilitate access to LightSquared’s network” there is no associated commitment to actually make devices. Though Sharp and Airtouch “have agreed” to develop a range of devices, there is apparently no timeline for this to take place (indeed Sharp has stated publicly that it “would need a minimum purchase order before it would build such devices”). Basically, therefore it appears there will now be no devices capable of accessing LightSquared’s network for at least a year or more, making LightSquared’s continued assertions that it will launch service in the “second half of 2012″ even more laughable than they already were.
More importantly, if testing of LightSquared devices is also a pre-requisite for FCC approval, as the PNT Advisory Board apparently desires, then it now seems that this will not be possible for many months to come. Of course, this gives the FCC yet another excuse to hold off from making any ruling on the LightSquared issue, even to ban terrestrial deployment in the upper 10MHz band which everyone knows can never be used, because that will simply provide LightSquared with the excuse it is looking for to initiate litigation over the supposed expropriation of “part of LightSquared’s spectrum – worth billions of dollars”.
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11.04.11
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 1:04 pm by timfarrar
In addition to Sprint’s announcement today that it plans to offer new debt in a private transaction, Sprint has more quietly been rounding up additional money from both LightSquared and DISH. In Sprint’s most recent 10-Q, filed yesterday, the company notes that “In September, the [spectrum hosting] arrangement was amended to change the September 30, 2011 contingency date for LightSquared’s performance to December 16, 2011. The December 31, 2011 contingency date remained unchanged. This amendment also provided for an additional prepayment of $20 million, which was received in October 2011.” Today, Sprint has told the FCC that “DISH and Sprint have today reached an agreement to settle all of these [reimbursement] disputes among Sprint, DISH, and their subsidiaries and affiliates in a mutually satisfactory manner” and will presumably therefore be paid a significant proportion of its $220M claim against DBSD and TerreStar ($110M per company) for BAS relocation expenses.
UPDATE (11/7): DISH has now revealed that it will pay Sprint a total of $114M, though it is not yet clear if Sprint will retain any additional claims in the bankruptcy cases of DBSD and/or TerreStar Networks.
However, the two disclosures appear to have rather different consequences for LightSquared and DISH. In the case of LightSquared, this represents another $20M of expenditure over and above the amount assumed in my analysis earlier this week. More importantly, Sprint has set a precedent under which it will now presumably expect to be paid even more money when LightSquared is unable to meet the revised deadline of December 16 and the second deadline of December 31 (and of course it is certain that the FCC will not be able to rule by then, because LightSquared’s proposed filter for precision GPS equipment is not being tested by the government this month, as LightSquared has now admitted).
I also now suspect that Boeing’s vendor financing loan may simply have been extended (perhaps by 12 months?), from its original December 2010 repayment deadline, and a new deadline is likely to occur relatively soon, because Boeing will need some certainty about whether the SkyTerra-2 satellite will be available for its MEXSAT project. If Boeing does insist on repayment (of what would now be $130M+) within the next few months, then (faced with the unpalatable alternative that LightSquared forfeits the ground spare satellite and potentially jeopardizes its ATC license) LightSquared could well run out of money before its next first lien interest payment in April. Specifically, my estimate on Monday was that LightSquared would have about $170M in cash at the end of Q1 2012, which would not be sufficient to cover a payment of $130M+ to Boeing, plus the $20M already paid to Sprint and the additional payments that are now likely in respect of the December deadlines. Even without making any repayment to Boeing, if LightSquared needs to pay Sprint an extra $20M for each additional 3 month deadline extension, then it would have barely enough money to make the interest payment due on April 1, 2012.
In the case of DISH, it appears that the news of a Sprint settlement is more positive, as it removes one of the main roadblocks to the FCC approving a transfer of control of the DBSD and TerreStar assets to DISH. However, DISH’s requested ATC waiver has come under more pressure, with AT&T now joining the CTIA in pressing for the waiver issue to be considered in a full rulemaking proceeding. Interestingly, both AT&T and the CTIA raise the question of a windfall, with the CTIA explicitly noting (footnote 21) that:
While DISH argues that it took into account the possibility of future flexibility for the spectrum during the bankruptcy process, certainly other parties were not factoring that into the process. Moreover, 40 MHz of nationwide, terrestrial broadband spectrum would not be valued at $2.8 billion. When looking at past valuations for such spectrum assets, a valuation of 3 to 4 times this would be more realistic if terrestrial rights were guaranteed.
Of course, that statement once again highlights the issue of LightSquared’s own $10B windfall problem which the GPS industry are now making so much of, and makes it harder for the FCC to grant DISH a waiver without some way to recover value for the Treasury. As a result, it is plausible that (with the transfer of control and ATC waiver being processed by the FCC in separate dockets) a ruling on the transfer of control could come ahead of any waiver decision.
UPDATE (11/14): A November 9 ex parte filing from DISH appears to confirm that the FCC is concerned about the “windfall” issue and might separate the transfer of control ruling from the waiver requests.
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10.31.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:18 am by timfarrar
Back in September I tried to analyze LightSquared’s cashflows, in order to predict when it might run out of money. A Debtwire article published in the FT earlier this month gives some useful data which has enabled me to refine that analysis. In particular, it states that after paying Sprint its $290M and raising $265M as an unsecured term loan, at the end of the second quarter of 2011 LightSquared had about $614M in cash.
That amount is very close to my estimate, with one exception, namely that it appears LightSquared did not repay Boeing’s vendor financing loan of ~$120M in December 2010. That loan was secured against the SkyTerra-2 (formerly MSV-2) satellite, which LightSquared told the FCC in October 2010 would be launched in the first half of 2011 (to meet the deadline in LightSquared’s Canadian license to place the satellite in orbit of April 23, 2011). Of course that didn’t happen, and I assume that LightSquared cancelled the launch to save money.
However, as I noted last December, Boeing’s contract to build the MEXSAT system involves the construction of two copies of the LightSquared satellite, and it would therefore make sense for Boeing to re-use the SkyTerra-2 satellite for its MEXSAT contract. It therefore seems that Boeing has either kept the vendor financing in place (under the assumption it will pick up the SkyTerra-2 satellite in bankruptcy) or has already reached some agreement with LightSquared to purchase the SkyTerra-2 satellite in exchange for forgiving the vendor financing loan. Either way, it seems that LightSquared’s creditors may now have one less asset to monetize in bankruptcy.
Taking this incremental $120M in cash into account, I have updated my financial projections, and these are given below. LightSquared has stated that it is funded through Q1 of 2012, and that it can “extend the runway of cash” if it has to. This appears to be a reference to deferring the next significant payment to Sprint, which I understand is due at the end of Q1. Sprint may or may not choose to extend the payment schedule with LightSquared, though Sprint’s actions would likely be dependent on what best positions it to retain the $290M already paid by LightSquared in a bankruptcy. However, as shown in the analysis below, even if no more payments are made to Sprint, LightSquared would still run out of money by the summer of 2012.
Interestingly the DebtWire article claims (incorrectly in my opinion) that LightSquared’s “liquidity is sufficient through 2012″ and more astonishingly that “current trading levels [for the first lien debt at 50 cents on the dollar] imply investors are taking a conservative approach and only valuing the more dependable 20 MHz, valued at USD 0.13-USD 0.14 megahertz per population (MHz/POP)”. Of course, this is far from a conservative approach when comparing the valuation with TerreStar and DBSD, because LightSquared must make lease payments of $115M per year to Inmarsat for access to the L-band spectrum, equivalent to an additional 30 to 40 cents per MHzPOP (depending on the appropriate discount rate), when attributed solely to the “more dependable 20 MHz”. Put another way, if LightSquared has to keep paying for the Inmarsat lease, and can only make use of 20MHz of its L-band spectrum (even if that were usable in the near term, which it will not be), then if DBSD and TerreStar were the appropriate benchmark (20 to 25 cents per MHzPOP) the LightSquared spectrum would be worthless.
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10.28.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 4:32 pm by timfarrar
Over the last few months, LightSquared’s CEO has repeatedly asserted that he is “absolutely confident” that LightSquared will “build a system that works with” GPS and that “we will get the proper approvals from the FCC and other government agencies” when the decision comes out in September. Most recently, at the end of September, he told the New York Post that he is “absolutely confident the FCC will approve” LightSquared’s revised business plan later this year. I’m also told that earlier this year he personally “guaranteed” to investors there was no interference problem with GPS, which was how LightSquared was able to raise a further $586M in February.
News has emerged today which yet again proves Mr Ahuja’s confidence was completely misplaced, with Aviation News reporting that the next round of government tests of LightSquared’s “lower 10″ plan are getting underway this week and will run into the first part of November. Notably, as I indicated earlier, high precision receivers are not part of this testing and so the testing needed for the FCC to reach a decision will certainly not be completed this year (not to mention the fact that the NPEF doubts it will be possible even to complete its analysis of the current testing by November 30).
High-precision GPS receivers, which original tests showed would suffer unacceptable interference even from lower-band transmissions, are not being tested as LightSquared is still working with suppliers on development of antennas and filters to protect these devices, used in agriculture, construction and scientific sectors.
Indeed a new ex parte submission, documenting a meeting between the GPS industry, LightSquared and the FCC on October 25, brokered by a member of Congress, confirms that “LightSquared has proposed to develop new filters that could be employed in new high precision GPS receivers that would protect against interference from Low 10 MHz transmissions. Such filters have not yet been made available”. This is despite LightSquared’s assertions on September 21 that “Javad GNSS has completed the design, made prototypes and tested those prototypes. Preproduction units will be released for public tests in October, followed by mass production.”
Perhaps that is why LightSquared apparently now plans to commission its own “independent” tests by Alcatel-Lucent Bell Labs, though of course those will not carry any weight in the testing process mandated by the NTIA and FCC. However, it is hard to see how LightSquared can claim that “These solutions will undergo extensive National Telecommunications and Information Administration (NTIA) and Federal Communications Commission (FCC) testing in the coming weeks” unless “in the coming weeks” is re-defined as “sometime next year (if we’re still in business then)”.
Over the last month, we haven’t seen as many high profile appearances from Mr Ahuja, and apparently he has been visiting India to promote his Augere venture in Asia and Africa. However, he is scheduled to speak on Wed Nov 2 at the Open Mobile Summit in San Francisco, and it will be interesting to hear how “absolutely confident” he is in whatever LightSquared’s story changes to next week.
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10.26.11
Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum at 11:03 am by timfarrar
Last week we saw various filings from wireless companies and the CTIA on DISH’s transfer application/ATC waiver request for DBSD and TerreStar, which mostly just served to highlight the interests of the different wireless operators. MetroPCS asked the FCC to force DISH to provide a detailed business plan before considering the transfer application (in other words to do a deal with them rather than wait for a decision on the AT&T/TMO merger). Sprint asked the FCC to condition the transfer on reimbursement of Sprint’s relocation expenses, and to impose the same buildout conditions on DISH as the FCC imposed on LightSquared in exchange for the waiver (thereby potentially forcing DISH to pay Sprint to host their buildout). Meanwhile the CTIA asked the FCC to defer any decision on a waiver until a more general rulemaking proceeding has been completed (thus allowing the wireless operators to find out what will happen to the AWS-3 spectrum and whether the 1755-1780MHz block will be available for pairing). Ironically the CTIA cited potential interference with the G-block PCS spectrum as a reason for delay, when Sprint (who owns this spectrum) didn’t even mention it in their submission.
DISH’s formal response is due tomorrow (Oct 27), but an ex parte submission and an interview with Charlie Ergen both highlight that DISH is going to make sure that the FCC is under more pressure to conclude this proceeding (and finally take the first step towards its goal of making more spectrum available) than DISH is. Indeed DISH would clearly prefer to wait until a decision is reached on the AT&T/TMO merger, because if the proposed merger is blocked then more potential partnerships would open up. In my view, the most likely partnership would then be with AT&T, which has come close to a deal to buy DISH in the past, and would be able to use both DISH’s 2GHz MSS-ATC spectrum and its 700MHz E-block spectrum (in conjunction with the MediaFLO spectrum that AT&T plans to buy from Qualcomm).
However, the FCC still has to avoid giving DISH a similar spectrum windfall to LightSquared and if DISH is to avoid having to give up part of the spectrum for reauction, it will have to come up with some creative way to reimburse the Treasury financially for any windfall (e.g. offering to pay the difference between what it paid for DBSD and TerreStar and the amount the adjacent J-block 2020-25/2175-80MHz spectrum sells for in any future auction).
Today, it seems that Sprint has rowed back somewhat on its implied threat on October 7 to force Clearwire into bankruptcy, announcing a “non-binding memorandum of understanding to work together” on ensuring that the two companies’ LTE networks will be interoperable. While this is only a limited first step towards Sprint providing concrete backing to Clearwire in 2013 and beyond, it appears designed to allow Clearwire to go out and attempt both to raise new funding and to secure other partnerships ahead of the early December deadline for Clearwire’s next interest payment on its debt. In the short term the most plausible new partnership would be with MetroPCS, which recently said it is “uniquely positioned” to do something with Clearwire, though it is unclear how much of a financial commitment this would actually involve on MetroPCS’s part.
Yesterday Sprint also indicated that it plans to deploy a 2x10MHz LTE Advanced network in its 800MHz iDEN spectrum, which is the subject of today’s MoU on interoperability. By using this additional spectrum for LTE (rather than CDMA as had been previously stated), Sprint would be able to deliver LTE across a mix of low (800), medium (1900) and higher (2500) frequency spectrum bands depending on the population density in a given area, with the Clearwire network providing supplementary capacity in the densest urban areas. If other wireless operators adopt a similar model, then Clearwire could become a wholesaler to multiple major carriers (e.g. Verizon as a supplement to its LTE deployment which is currently at 700MHz and will later extend to AWS), as would be needed if Clearwire is to build a wholesale business on the back of covering at most 100M-150M POPs. Nevertheless, it will take a minimum of several years before a company like Verizon or AT&T would realistically need that additional capacity and so Clearwire still has a lot of work to do (and a lot more money to raise, now that its WiMAX cashflows are likely to diminish) to pull off its transition to a multi-network wholesale provider of urban capacity, not least in creating an ecosystem around TD-LTE in the 2.5GHz band.
However, at least Clearwire appears to have a plausible plan for how to move forward, unlike LightSquared, which has now basically been written off by MetroPCS and (after today’s announcement) implicitly by Sprint as well. On that basis, it looks like Harbinger’s write-down of its LightSquared investment at the end of September will end up being only the first of several such actions. Its also very hard to see how investors in LightSquared’s first lien debt believe that they will be able to realize even 50 cents on the dollar in bankruptcy, when the most likely outcome is that there will be no purchasers for LightSquared’s spectrum at any price, because the regulatory risks will not be resolved and the ongoing Inmarsat lease obligation potentially outweighes the residual value of LightSquared’s spectrum assets.
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10.17.11
Posted in LightSquared, Operators, Regulatory, Spectrum at 8:38 am by timfarrar
‘If seven maids with seven mops
Swept it for half a year,
Do you suppose,’ the Walrus said,
‘That they could get it clear?’
‘l doubt it,’ said the Carpenter,
And shed a bitter tear.
In what seems like a reprise of LightSquared’s assertions in July that the FCC would reach a favorable decision in September (and indeed that they weren’t even “planning for the possibility that the FCC denies LightSquared the waiver when the decision comes out in September”), LightSquared is now asserting that the company “expects guidance from U.S. regulators by year’s end”. However, last week I spoke to several knowledgeable people about the testing and regulatory process and all were unanimous in their view that an FCC decision by December was utterly implausible.
The reasons for this become very clear once the current testing process is better understood. Those tests are being conducted by government personnel at an Air Force base (most likely White Sands or Holloman, where the previous round of government live sky testing was undertaken), beginning late next week and running through November 4. That testing is confined to “cellular and personal/general navigation” receivers as specified in the NTIA letter of September 9. As of last week, I understand that there was no intention to test the Javad precision receiver with the new prototype filter, and although LightSquared is trying hard to have that included in the testing process, it is certainly not part of the cellular test plan.
However, even if LightSquared succeeds in its efforts to get some testing done in the next three weeks, it would be essentially irrelevant, because the TWG tested 33 high precision and network GPS receivers in live sky conditions (and a total of 44 high precision and 13 timing receivers in an anechoic chamber) and these would all need to be retested before conclusions can be drawn about how to move forward. Indeed it is extraordinarily difficult just to come up with a test plan on this issue, given that circuit board level integration would likely be needed to incorporate the proposed filter into quite a number of these devices, which will take months of work.
After the current round of tests completes on November 4, it will take some time for the NPEF to write-up the results of that work, and I understand that no further testing is planned by the government in the rest of November. Indeed, it may only be possible to complete a summary of the cellular and personal/general navigation testing by November 30, and a complete report may be delayed into December. Once this is understood, LightSquared’s assertions simply become unsustainable.
Another, more worrying conclusion that emerged from my discussions last week is that the effects of the LightSquared debacle may now range much wider in terms of regulatory impact for the satellite industry. Comparisons were drawn with the ITAR backlash in the late 1990s, which has scarred the satellite industry for more than a decade, as another example of Congress running amok with a technical issue that has evolved into a political soundbite. In this context, DBSD and TerreStar may find it hard to gain a waiver without giving up something significant (such as half their spectrum) and the eagerness of the FCC to defend other satellite spectrum rights may also come under question.
The MSS industry in particular looks relatively vulnerable, as it has seen a significant decline in underlying service revenue growth this year, from an average of 7% growth in 2007-10 to less than 3% growth in 2011. As a result, this cannot be good news for a sector which has seen far more capex than can be justified by future MSS revenue prospects, and may now be faced with an even more challenging path to exploit the spectrum assets which have supported several of those investments.
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10.11.11
Posted in Financials, Regulatory, Spectrum at 2:14 pm by timfarrar
In October last year I wrote about the supposed spectrum “crisis” and how the FCC’s Spectrum Summit likely marked the point at which the spectrum bubble began to unwind. A year later, many of those predictions appear to be coming true, with most people now writing off LightSquared (and ridiculing Sprint for selecting them as their “preferred” provider of additional capacity).
Indeed I’ve been surprised how investors’ focus is now much more on Clearwire and DISH, whose spectrum holdings are perceived to have some long term value, and its almost become received wisdom that LightSquared’s spectrum holdings may not provide any recovery in bankruptcy, because the FCC is unlikely to grant approval for terrestrial use of the L-band spectrum (at least ahead of the election, and even then, at best, with a long transition period to update or replace precision devices).
Clearwire’s bonds are also trading at levels that assume they will have to file for bankruptcy, and that their spectrum assets will be sold at a significant discount. I was told that the $2.95B of senior secured notes were trading as low as 50 cents on the dollar, with the $500M second lien at around 30 cents and the $730M of exchangeable notes at around 20 cents, which would put the implied value of Clearwire at $1.5B-$1.8B, despite holding more than 40B MHzPOPs of spectrum.
UPDATE: Prices for Clearwire’s first lien debt are now in the mid-70s, putting a value on the company of closer to $2.5B. While the first billion dollars or so of spectrum sales in a liquidation seems fairly assured, the second billion would be less straightfoward and a third billion even more challenging. Clearwire also faces a large upcoming interest payment in December which will likely represent a key decision point for how it should move forward.
Of course, about 60% of Clearwire’s spectrum is leased, and so may not be in much demand from potential purchasers, while the 17.5B MHzPOPs of owned spectrum is not all contiguous. More importantly, the majority of Clearwire’s owned spectrum comes within the FCC’s spectrum screen, and so it is hard to see why a carrier like Verizon would choose to buy Clearwire’s spectrum and thereby potentially impair its ability to acquire more lower frequency spectrum like SpectrumCo’s AWS-1 block in the future.
However, other than Sprint, virtually the only obvious alternative buyer for Clearwire’s spectrum is MetroPCS, which would probably not want to buy more than 2-4B MHzPOPs of spectrum (i.e. 20-40MHz across its existing 100M POP footprint) and would therefore potentially spend no more than about $1B in total. This puts the pressure on Clearwire to adopt the @Home strategy, which would mean filing for bankruptcy well before Sprint has a credible alternative network in place and threatening to cut off Sprint’s customers unless Sprint pays them a great deal more for capacity in the near term. Sprint would then either have to make a much better offer for Clearwire’s spectrum, or pay for transition services until it could transfer the EVO 4G customers to its own LTE network (allowing Clearwire to make money for its debtholders both from offering service to Sprint and from later selling at least part of its spectrum holdings to another player like MetroPCS).
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10.07.11
Posted in Financials, LightSquared, Operators, Spectrum at 4:27 pm by timfarrar
So Sprint’s management team did a great job of living up to Dan Hesse’s introductory admonition in their Network Vision Strategy Update today, when they failed completely to explain either their near term cash requirements (other than to suggest they will be out raising capital “opportunistically”) and how this will be impacted by the iPhone, or how they are going to deploy a competitive LTE network with only 2x5MHz of PCS G-block spectrum (which they admit will run out of capacity by the time the network deployment is complete in 2014). Unsurprisingly, the audience applauded when this plan was described as “ridiculous” by one questioner.
In their presentation, Sprint management took every opportunity to tout their intention to use hosted spectrum from LightSquared over the wholesale access currently available on Clearwire’s network, because of the “better economics” this provides for Sprint shareholders. When pressed on whether they would provide further support to Clearwire, Sprint basically confirmed the hypothesis advanced by Pardus Capital earlier this year, that Sprint intends to drive Clearwire into bankruptcy, in the expectation that Sprint will be able to acquire Clearwire’s spectrum on the cheap. Sprint also refused to address the question of LightSquared’s GPS interference issues, suggesting in one slide that LightSquared was the primary source for incremental capacity beyond the PCS G-block and yet later insisting that LightSquared was “all upside” and they were not assuming that they would get any more money from them.
Of course, other than to indicate that it would not be providing funding to LightSquared (which is hardly surprising since Sprint currently does not have enough money to fund its own network buildout), Sprint had no answer to one perceptive questioner, who asked what would happen if LightSquared failed to raise enough money to pay for the hosting agreement, and highlighted that it is hard to see why anyone would want to invest in LightSquared when they can see what has happened (and by implication what Sprint has done) to Clearwire investors. Indeed one might very well conclude that if LightSquared does get approval from the FCC to move ahead, Sprint expects to do the same to LightSquared and pick up its assets in bankruptcy. Of course, at this point in time such plotting is virtually irrelevant, because LightSquared’s spectrum is not likely to be usable for years to come, if ever.
After this debacle, it is hardly surprising that both Sprint and Clearwire’s stock prices have fallen sharply, and expectations of a Clearwire bankruptcy have heightened significantly. However, though Sprint’s CEO pointedly remarked that “no bankruptcy case involving a wireless company has resulted in a disruption of service”, that has not been true for (fixed) wireless broadband companies such as Teligent and Winstar.
This situation also brings to mind the @Home bankruptcy in the fall of 2001 (my first introduction to US bankruptcy cases), where @Home threatened to turn off its cable modem network, thereby forcing its cable partners to pay a significant premium for “transition services” while they built out their own networks (indeed AT&T’s customers were actually disconnected because no agreement was reached). In addition, AT&T was subsequently sued for its involvement in driving @Home out of business, and settled that suit for $340M in 2005.
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