Inmarsat, MSV End Spectrum Feud with Mutual Support Agreement

KOUROU, French Guiana —


Inmarsat
and




Mobile Satellite Ventures (MSV) announced Dec. 21 that they have agreed to mutual-support measures to favor deployment of a hybrid satellite




and terrestrial mobile communications service in the United States. The agreement also includes features that could result in a de facto merger of Inmarsat and SkyTerra-owned MSV




even if they maintain separate corporate identities.

The immediate effect of the deal, which must be approved by U.S. regulators, is to permit the two mobile satellite services companies to reorganize their use of L-band radio spectrum so that each ends up with an uninterrupted block of spectrum.

L-band spectrum reorganization has long been called for by the U.S. Federal Communications Commission (FCC) because it will facilitate the provision of mobile satellite services by




MSV of Reston, Va., and London-based Inmarsat.

The agreement also ends a long-running dispute between the two competitors by permitting Inmarsat to continue using pieces of the spectrum that MSV had claimed as its own. MSV will furnish an additional slice of L-band spectrum for Inmarsat’s use, according to the agreement.

The broader consequence of the deal is to better position SkyTerra and MSV to find a strategic partner to finance deployment of an




Ancillary Terrestrial Component




(ATC) network consisting of




ground-based signal boosters that assure signal reception where satellite transmissions




cannot reach. This is expected to be a multibillion-dollar investment to provide uninterrupted coverage in




the United States and Canada. None of the current mobile satellite services operators has the financial strength to make this investment on its own.

MSV has ordered two large satellites from Boeing Satellite Systems International of El Segundo, Calif., but has yet to find a partner for its ATC network




. The company has staked its future on being able to find an ATC investor before it runs out of cash.

In a Dec. 21 filing with the U.S. Securities and Exchange Commission (SEC), MSV owner SkyTerra Communications Inc. says the new division of L-band spectrum with Inmarsat will make it easier for MSV to secure investor backing for an ATC network.

But the




arrangement also will force Inmarsat to modify part of its existing ground network in the United States. SkyTerra/MSV has agreed to pay Inmarsat in SkyTerra stock and in cash, with the amount of the payments depending on how far MSV proceeds in its ATC system. Taken together, the total payments have the effect of making these two competitors –




who already have




a common large shareholder, Harbinger Capital of Birmingham, Ala. –




more like partners that could be merged into a single company.

SkyTerra
/MSV has agreed to pay Inmarsat $31.25 million in stock in return for Inmarsat’s agreement to facilitate the use of L-band spectrum for ATC tests to be conducted by MSV.

Between now and 2011, further L-band modifications included in the agreement will force Inmarsat to modify its existing ground network. If this occurs, SkyTerra/MSV will pay Inmarsat $250 million in cash and an additional $87.5 million in stock.

Still more modifications in how Inmarsat and MSV divide L-band could occur between January 2010 and January 2013 and force Inmarsat to make further modifications to its current operations in the United States. This second phase of collaboration would require SkyTerra/MSV to pay Inmarsat $115 million a year in cash.

Simon Ailes, Inmarsat’s director of investor relations, said Dec. 21 that the annual




payment would mean Inmarsat will not seek an ATC partnership elsewhere.

If these agreements are put into effect, SkyTerra will issue up to $118.75 million in stock to Inmarsat, according to the SEC filing.

Harbinger Capital recently informed the London Stock Exchange that it had become Inmarsat’s largest investor, with a 20.1 percent stake. Harbinger has since increased its stake to 23.5 percent.

Harbinger is also a major shareholder and creditor for SkyTerra/MSV and has been increasing its stake in recent weeks.




Harbinger agreed Dec. 17 to purchase $150 million in SkyTerra bonds and warrants for 7.5 percent of SkyTerra stock.