Dish Network’s Ergen Rouses Speculation on Purchase of LightSquared Debt

[Satellite News 05-11-12] Dish Network chairman Charlie Ergen has reportedly bought up $350 million worth of debt from 4G LTE network operator LightSquared after raising $1.9 billion in cash through bond sales during the last week, several analysts told Satellite News May 11.

   LightSquared, which is controlled by Harbinger Capital Hedge Fund Director Philip Falcone, owes a significant amount of debt after its long-running spectrum interference clash with the U.S. Federal Communications Commission (FCC). Some of that debt is owed to MSS operator Inmarsat, which allocated a portion of its L-band spectrum to move LightSquared’s signal farther away from GPS signals.
   The FCC declined to grant a waiver to LightSquared that would have allowed the company to use its spectrum for conventional wireless service because of concerns about interference with GPS systems.
   Dish Network announced May 8 that a subsidiary priced $900 million aggregate of five-year senior notes with 4.625 percent interest and $1 billion in 10-year, 5.875 percent senior notes would be used for general corporate purposes. Moody’s Investors Service noted that the proceeds could fund payments of maturing debt, such as in the situation with LightSquared.
   During a conference call with investors earlier this week, Ergen was asked to comment on his intentions on future related investments, particularly if he would spend $10 billion to construct his own network. “That amount is not necessarily prohibitive,” said Ergen. “I’m happy to spend $10 billion if we can get a 50 percent return on it every year, right? I wouldn’t be happy to spend $10 billion if we get a 3 percent return on it every year.”
   Dish Network paid nearly $3 billion for 40 megahertz (MHz) of spectrum in the 2-gigahertz band that was previously owned by its subsidiary’s DBSD North America and TerreStar Networks. The FCC requires that services provided over the wavelengths involve a satellite component. Ergen is seeking permission to use that bandwidth for conventional service, alongside Dish Network’s 6 MHz of spectrum in the 700 MHz band, which it purchased from the U.S. government in 2009 for $712 million.
   At the time of the conference call, Ergen did not disclose whether he had an interest in LightSquared or getting involved in an embattled wireless broadband startup. “The most likely outcome is that we’ll find a partner that is already in the wireless business,” he said at the time. “The $4 billion Dish has invested in wireless licenses generated more value than if the funds had been spent to attract more satellite TV subscribers. For shareholders, the best outcome would likely be a flip.”
   Several analysts had their own take on what Ergen and Dish Network would do with a LightSquared investment. Recon Analytics Researcher Roger Entner said Ergen’s willingness to publicly discuss the possibility of a $10 billion network construction project was particularly interesting to analysts.
   “Of course, such talk could be a bluff to pressure spectrum buyers,” Entner said. “The only thing you can use LightSquared’s spectrum for is satellite telephony. If Ergen used DBSD and TerreStar’s 2 GHz spectrum to carry mobile broadband and devoted LightSquared’s network to more limited purposes, then the debt purchase makes sense."

   Bingham McCutchen Analyst Andrew Lipman said the variety of players involved in the transaction makes it a difficult one to gauge for the struggling LightSquared. “The shifting cast of characters makes the situation more fluid,” said Lipman. “It’s like a kaleidoscope. Given the blurred optics on Ergen’s wireless goals and LightSquared’s debt and regulatory woes, a kaleidoscope might actually be an improvement.”

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