Harbinger-SkyTerra LTE Deal Worth $7 Billion: Will Satellite Play a Major Role?
By Jeffrey Hill | July 20, 2010
[Satellite News 07-20-10] Harbinger Capital’s eight-year, $7 billion contract with Nokia Siemens Networks to build and operate a 4G LTE satellite and mobile broadband network for wireless providers may be one of the largest telecom deals seen in U.S. history. However, some analysts question the importance of satellite’s role in the hybrid network, which will rely on satellites and terrestrial spectrum Harbinger acquired through its $280 million purchase of SkyTerra in March.
The new venture, dubbed LightSquared, plans to launch in its first markets by the middle of 2011 and aims to provide coverage to 92 percent of the United States by 2015. Harbinger said the deal will meet financing and ATC licensing requirements set by the U.S. Federal Communications Commission (FCC) when the firm acquired SkyTerra. One of those conditions requires Harbinger to seek the FCC’s approval before leasing spectrum on its network to major wireless providers such as AT&T and Verizon, in order to promote competition in the next-generation wireless broadband market. Another requirement is that Harbinger must build out its network to provide coverage to at least 100 million people in the United States by the end of 2012, 145 million people by the end of 2013, and 260 million people by the end of 2015.
In Via Satellite’s August 2010 issue, Columnist and North Star Consultancy Analyst Max Engel said he believes it is nearly impossible to construct a scenario in which a major portion of the users of an ATC network would actually use the satellite portion of the system. “How this vision is received at Harbinger is not certain, but Harbinger is clearly trying to create a broad terrestrial network with TerraStar as a foundation. The point is that the investment opportunity is largely the terrestrial network, not the satellite overlay.”
Rather than asking if ATC is a good investment, Engel believes the question should be whether a satellite spectrum-based terrestrial network is a good investment. “Buildout costs for Harbinger’s LTE network were estimated in the $4 billion range. TerraStar owes Space Systems/Loral hundreds of millions of dollars for the two satellites that provide legal access to much of the spectrum to be used in this $4 billion network. Instead of buying spectrum in an auction, TerraStar, and hence Harbinger, purchased satellites,” said Engel.
However, Harbinger’s deal with Nokia could be a signal that the investment firm believes in the demand for a variety of connectivity options in the market, as well as its diversified profitability. Harbinger Capital Partners and affiliates have invested $2.9 billion in the LightSquared venture, and plans to raise up to $1.75 billion in debt and equity before service launch.
Engels believes that the portion of mobile users who need absolutely guaranteed connectivity via satellite is small. Once added, these will utilize traditional satellite strengths, such as universal coverage and the ability to multicast. But, Engels said these niche users might not be enough to cover the investment. “I have never thought that these alone were a sufficiently compelling offering to justify the development of a full-blown ATC system. Such a system might well be modestly profitable, but it is not clear that it would be the best place to put your money to archive a high level of return.”
Engels also commented on how an ATC investment like LightSquared would play a role in the FCC’s June proposal to open up 90 megahertz of MSS spectrum for ATC use as part of its National Broadband Plan and how investors would react. “The FCC wants ATC networks to succeed for all of the traditional reasons. For an investor, however, the real message is that the FCC won’t grab the MSS spectrum to reallocate to other users and that if the terrestrial portion of the network can rival current terrestrial networks, it could be a real moneymaker.”
The new venture, dubbed LightSquared, plans to launch in its first markets by the middle of 2011 and aims to provide coverage to 92 percent of the United States by 2015. Harbinger said the deal will meet financing and ATC licensing requirements set by the U.S. Federal Communications Commission (FCC) when the firm acquired SkyTerra. One of those conditions requires Harbinger to seek the FCC’s approval before leasing spectrum on its network to major wireless providers such as AT&T and Verizon, in order to promote competition in the next-generation wireless broadband market. Another requirement is that Harbinger must build out its network to provide coverage to at least 100 million people in the United States by the end of 2012, 145 million people by the end of 2013, and 260 million people by the end of 2015.
In Via Satellite’s August 2010 issue, Columnist and North Star Consultancy Analyst Max Engel said he believes it is nearly impossible to construct a scenario in which a major portion of the users of an ATC network would actually use the satellite portion of the system. “How this vision is received at Harbinger is not certain, but Harbinger is clearly trying to create a broad terrestrial network with TerraStar as a foundation. The point is that the investment opportunity is largely the terrestrial network, not the satellite overlay.”
Rather than asking if ATC is a good investment, Engel believes the question should be whether a satellite spectrum-based terrestrial network is a good investment. “Buildout costs for Harbinger’s LTE network were estimated in the $4 billion range. TerraStar owes Space Systems/Loral hundreds of millions of dollars for the two satellites that provide legal access to much of the spectrum to be used in this $4 billion network. Instead of buying spectrum in an auction, TerraStar, and hence Harbinger, purchased satellites,” said Engel.
However, Harbinger’s deal with Nokia could be a signal that the investment firm believes in the demand for a variety of connectivity options in the market, as well as its diversified profitability. Harbinger Capital Partners and affiliates have invested $2.9 billion in the LightSquared venture, and plans to raise up to $1.75 billion in debt and equity before service launch.
Engels believes that the portion of mobile users who need absolutely guaranteed connectivity via satellite is small. Once added, these will utilize traditional satellite strengths, such as universal coverage and the ability to multicast. But, Engels said these niche users might not be enough to cover the investment. “I have never thought that these alone were a sufficiently compelling offering to justify the development of a full-blown ATC system. Such a system might well be modestly profitable, but it is not clear that it would be the best place to put your money to archive a high level of return.”
Engels also commented on how an ATC investment like LightSquared would play a role in the FCC’s June proposal to open up 90 megahertz of MSS spectrum for ATC use as part of its National Broadband Plan and how investors would react. “The FCC wants ATC networks to succeed for all of the traditional reasons. For an investor, however, the real message is that the FCC won’t grab the MSS spectrum to reallocate to other users and that if the terrestrial portion of the network can rival current terrestrial networks, it could be a real moneymaker.”