Inmarsat Awaits Harbinger Payment for Interference Mitigation

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PARIS — A hedge fund that has promised U.S. regulators it will deploy a multibillion-dollar satellite-terrestrial mobile broadband network starting in 2012 has yet to make the preliminary investment needed to ensure that the network does not interfere with Inmarsat’s mobile satellite services, according to Inmarsat officials.

Inmarsat officials declined to draw any conclusions from the fact that Harbinger Capital Partners of New York, which now owns mobile satellite operator SkyTerra, has not made long-planned payments to Inmarsat to ensure that the Harbinger-SkyTerra mobile-broadband network is developed without creating interference issues

In a May 12 interview, Inmarsat Chief Executive Andrew Sukawaty nonetheless said replacing or retrofitting Inmarsat L-band user terminals in the United States that face interference from the Harbinger-SkyTerra network is not something that can be done overnight.

Harbinger owns 29 percent of London-based Inmarsat. As part of SkyTerra’s mobile-broadband network planned in the United States, the two L-band operators agreed in late 2007 that SkyTerra would be able to use some of Inmarsat’s radio spectrum under a broad cooperation agreement between the two companies.

Harbinger’s hybrid terrestrial-satellite network would use that same spectrum for terrestrial links between users and some 36,000 towers to be deployed in the United States, as well as for links to SkyTerra’s two planned satellites when terrestrial coverage is not available.

Under the deal, Harbinger and SkyTerra agreed to pay Inmarsat $250 million to compensate for Inmarsat’s two- or three-year effort to ensure that its customers’ hardware is fitted with filters to prevent signal interference. Other customers will need to replace their terminals, while still others will purchase hardware with the filters embedded.

In addition to the $250 million in cash, Harbinger and SkyTerra agreed to make annual payments to Inmarsat starting at $115 million, and escalating at 3 percent per year, as part of the long-term partnership on L-band spectrum sharing.

Harbinger’s written commitment to the U.S. Federal Communications Commission (FCC), which was a condition for its March acquisition of SkyTerra, said the network would be rolled out fast enough to ensure that 100 million U.S. residents are within its coverage by late 2012, 145 million people by late 2013 and 260 million by January 2016.

The Harbinger commitment surprised many in the industry with its aggressive schedule, which implies an immediate start to a sizable capital expenditure. A formal notification to Inmarsat that Harbinger planned to begin deploying its network, followed by a 30-month interference mitigation procedure by Inmarsat with its customers, was viewed as the next milestone Harbinger would need to pass.

In a May 11 conference call with investors, Sukawaty said Inmarsat has received no word from Harbinger or SkyTerra that would trigger the start of Inmarsat’s interference mitigation process.

Sukawaty said the interference issue is likely to be especially acute around airports and other areas of the United States with high concentrations of L-band base stations.

Inmarsat Chief Financial Officer Rick Medlock said the Harbinger-SkyTerra payment is supposed to be made in tandem with Inmarsat’s interference mitigation efforts over a 30-month period.

Referring to Harbinger’s FCC guarantees, Sukawaty said: “We’re going to have to get on our horse to accommodate that. I don’t know whether they [Harbinger and SkyTerra] mean to give earlier notice” than the September 2011 deadline that was part of their December 2007 spectrum coordination agreement and was made long before Harbinger had made its commitment to the FCC.

As it waits for Harbinger’s next move, Inmarsat’s mobile satellite services business continues to grow despite what company officials conceded was an unexpected slowdown in the growth of its key maritime market earlier this year.

Inmarsat reported May 11 that for the first three months of 2010, maritime revenue, at $86.2 million, was flat compared with the same period a year earlier. Maritime voice service revenue was down 7.6 percent, to $24.2 million, while maritime data were up by 3.5 percent, to $62 million.

Sukawaty said that given the number of new maritime satellite terminals activated during the period, the first-quarter figures should be viewed as a temporary dip.

The maritime underperformance was in sharp contrast to Inmarsat’s land-mobile and aeronautical revenue performance in the first three months of 2010. Land-mobile revenue was up by 31 percent, to $43 million, helped by about $5 million in exceptional use in Haiti and Chile following earthquakes. Aeronautical revenue was up nearly 36 percent, to $22.8 million.

Inmarsat’s total revenue, including bulk leasing of capacity on its older satellites, was $200.7 million. Sukawaty said that once recent acquisitions are removed from the comparison, the underlying mobile satellite services business grew by 12.3 percent compared to a year ago. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 71.8 percent of revenue.