Inmarsat has $1B at Stake in LightSquared Outcome

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PARIS — Mobile satellite services operator Inmarsat has more than $1 billion riding on the success of LightSquared’s satellite-terrestrial wireless broadband network and in the past has dismissed concerns about LightSquared’s interference with GPS signals.

But as the GPS community — industry and government, including the U.S. Department of Defense — has pushed the issue to higher visibility on Washington’s political agenda, London-based Inmarsat has been more muted in its defense of LightSquared.

In recent weeks, as it has become clear that Reston, Va.-based LightSquared may need to throttle back its use of L-band spectrum or even seek to replace it with S-band spectrum, Inmarsat has been more circumspect.

Inmarsat spokesman Christopher McLaughlin on June 16 said the company is following LightSquared’s travails closely but only as a spectator, not a participant. Inmarsat had backed LightSquared in the latter company’s regulatory dealings with the U.S. Federal Communications Commission.

To provide the high-speed links that it needs for its 4G LTE mobile broadband network, LightSquared is paying Inmarsat to rearrange Inmarsat’s use of L-band spectrum, leaving LightSquared with two unbroken chunks of L-band frequency.

In return for that favor, and to compensate Inmarsat for having to adjust its own customers’ ground gear given the rearranged spectrum allocation, LightSquared has agreed to pay Inmarsat $337.5 million. Inmarsat has said less than $250 million of that will be used to modify its customers’ Inmarsat terminals.

In addition to this sum, LightSquared has agreed to pay Inmarsat a fee of $115 million per year for at least seven years.

McLaughlin said Inmarsat is confident that LightSquared will find value in the L-band spectrum it plans to use. He declined to speculate on the consequences for Inmarsat should LightSquared cease to exist as an L-band user.

But industry officials said that if LightSquared ultimately files for bankruptcy, or moves to use S-band instead of L-band, the news might not be all that bad for Inmarsat.

First of all, these officials said, Inmarsat would be unlikely to refund the $300 million in cash LightSquared already has paid. Because Inmarsat has not incurred much cost yet in modifying its customers’ in-field equipment, this would be a $300 million windfall.

Inmarsat officials have said LightSquared has committed to paying the $115 million annual fee for five years. The agreement between the two satellite operators further stipulates that LightSquared must give two years’ notice if it wants to cancel the deal after five years, bringing the total commitment to seven years.

A bankrupt LightSquared might be able to negotiate a waiver of that seven-year engagement and limit it to five years. But the company’s creditors, who have loaned LightSquared about $1 billion, likely would hesitate before stopping payment before five years insofar as this would cause Inmarsat to take its spectrum back, thus reducing the value of an asset the creditors would be trying to sell, industry officials said.

 

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