PARIS — Startup mobile satellite/terrestrial broadband provider LightSquared on Jan. 28 paid mobile satellite services operator Inmarsat an initial $20.1 million in cash, triggering an agreement under which Inmarsat will provide LightSquared with L-band spectrum in North America and LightSquared will pay Inmarsat $115 million per year, the two companies announced.
Reston, Va.-based LightSquared’s decision to put into effect the second and final phase of its agreement with Inmarsat came two days after U.S. regulators granted it a waiver to its existing license that will permit it to sell, at least indirectly, terrestrial-only smartphones alongside the dual-mode satellite/terrestrial and satellite-only gear.
LightSquared had urged the U.S. Federal Communications Commission (FCC) to permit a terrestrial-only option as perhaps the only way to assure development of LightSquared’s multibillion-dollar development of a wireless broadband service.
In granting the approval, the FCC ordered LightSquared to satisfactorily prove to the U.S. regulatory body that the company’s network, featuring some 40,000 terrestrial base stations, will not interfere with signals from the U.S. GPS network of positioning, navigation and timing satellites. LightSquared must demonstrate that it is operating without interference before it will be allowed to start commercial service.
The FCC also ordered LightSquared to assure that its terrestrial-only handsets are not sold for substantially less than the dual-mode terminals. To be able to price the dual-mode terminals competitively with the terrestrial-only models, LightSquared or its service providers likely will need to subsidize the dual-mode handsets.
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The FCC acknowledged that approving a waiver to LightSquared’s license is likely to cause other companies that plan to use satellite bandwidth for both terrestrial and satellite service to seek similar concessions. Milpitas, Calif.-based Globalstar, which is building a second generation of low-orbiting satellites, told the FCC just that in a filing.
The U.S. regulator defended its decision by noting how much LightSquared already has invested in a mobile satellite service, including the $600 million the company says it has spent building, launching and insuring its SkyTerra 1 satellite, which has been in geostationary orbit since November and undergoing testing.
LightSquared is paying Qualcomm $50 million to design chipsets that will function in dual mode, and the company committed to the FCC that it would offer wholesalers a single rate card for service pricing, not separate satellite- and terrestrial-based prices.
The FCC highlighted LightSquared’s previous commitment that its satellite/terrestrial mobile broadband service would reach at least 100 million Americans by Dec. 31, 2012, and 260 million Americans by Dec. 31, 2015.
The FCC did not take up the issue of whether, given the state of development of LightSquared’s system, either of these service milestone deadlines is realistic. LightSquared has contracted with Nokia Siemens to build the ground infrastructure, including the deployment of the 40,000 ATC — ancillary terrestrial components — that will provide the terrestrial bandwidth. But it remains unclear how much work Nokia Siemens has completed. Also unknown is the amount of co-investment, beyond owner Harbinger Capital Partners of New York, LightSquared has secured.
The FCC also took note of LightSquared’s substantial payments to London-based Inmarsat to reorganize L-band spectrum in North America to improve LightSquared’s service offering. Inmarsat, which at one time was considered a possible LightSquared takeover target and previously was a potential competitor, will now be a LightSquared facilitator.
Under what Inmarsat and LightSquared call Phase 1 of their agreement, which entered into effect in August 2010, LightSquared is paying Inmarsat a total of $337.5 million.
Phase 2, which was activated with the Jan. 28 cash payment of $20.1 million, calls for LightSquared to pay Inmarsat $115 million per year, rising by 3 percent each year, for so long as LightSquared operates its network.
In return, Inmarsat will adjust its customers’ ground equipment to be sure they do not unduly suffer from LightSquared interference.
“Inmarsat has already initiated programs to ensure our customers are protected from interference risks,” Inmarsat Chief Operating Officer Perry Melton said in a Jan. 28 statement. “Inmarsat is confident that the effects on customers will be minimal and, where needed, will be dealt with responsibly.”
While not minimizing the costs it will incur to modify its operations in North America, Inmarsat officials have said the LightSquared agreement constitutes a windfall for the company.
LightSquared Chief Executive Sanjiv Ahuja said his company has agreed to begin Phase 2 with Inmarsat ahead of schedule because of strong demand for the LightSquared service.
“When Phase 2 is fully executed, LightSquared will have the use of up to 59 megahertz of terrestrial and L-band ATC spectrum over the continental United States and Canada to operate its nationwide integrated 4G-LTE and satellite network,” Ahuja said in a Jan. 28 statement.