Inmarsat: No Regret about LightSquared Deal Despite AWS-3 Auction

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PARIS — Mobile satellite services operator Inmarsat dismissed suggestions the recent auction of terrestrial radio spectrum in the United States suggests the company undervalued its spectrum rights when cutting a deal with LightSquared.

London-based Inmarsat said it views radio spectrum as a resource to be used for its satellite communications business and not as a speculative investment in the value of the frequencies.

“We’re an operating satellite company who uses spectrum to drive a business and we have not seen that spilling over into pure terrestrial use,” Inmarsat Chairman Andrew Sukawaty said during a March 5 conference call with investors. “We’ve seen it spilling over into hybrid use, which is why we acquired an S-band license in Europe for a hybrid air-to-ground system. But we’ve not seen fit to be one of the speculators on spectrum.”

Inmarsat and Reston, Virginia-based LightSquared in 2007 entered into a series of arrangements under which Inmarsat would rearrange its use of L-band spectrum over North America so that LightSquared, planning a satellite-terrestrial mobile broadband service, would have use of a larger, contiguous swath of spectrum.

By the time LightSquared filed for Chapter 11 bankruptcy in May 2012, it had already paid Inmarsat some $300 million. Payments have been made in fits and starts since then, and the two companies have rewritten their agreement to account for LightSquared’s financially stressed status.

But LightSquared, despite multiple proposed Chapter 11 restructuring plans that have come and gone — the company remains in Chapter 11 — has continued to make the minimum payments needed to maintain the Inmarsat deal.

LightSquared paid Inmarsat $31.6 million in 2014, and in February made another payment of $17.5 million, Inmarsat said in releasing its 2014 financial statement.

“From our perspective it has worked well because we created an opportunity for them, which we support, while at the same time we realized some value in making room for them, so to speak — in essence, giving up some business over North America in order to accommodate them, which is in essence what they’re reimbursing us for,” Sukawaty said.

LightSquared is one of several U.S. companies that over the past 20 years have sought to parlay spectrum acquired free of charge for use in a mobile satellite business into a terrestrial network.

Those without satellite spectrum have been left to battle through auctions held by the U.S. Federal Communications Commission (FCC). In the latest auction for three chunks of spectrum, called AWS-3, which ended in late January, the FCC said 1,611 winning bidders had agreed to pay $41.3 billion for their spectrum rights. It remains unclear how many of these bidders will pursue their businesses and make their payments to the FCC.

But the bidding prices of this latest auction might suggest that Inmarsat left money on the table in its LightSquared deal.

LightSquared’s original business plan was scuttled when the U.S. Defense Department and commercial providers of U.S. GPS hardware said LightSquared’s spectrum use, specifically its terrestrial signal boosters, would interfere with millions of GPS terminals already installed.

Rupert Pearce Inmarsat
Inmarsat Chief Executive Rupert Pearce said LightSquared’s bankruptcy appears to be headed to a resolution. Credit: Inmarsat video capture

How LightSquared will resolve that problem remains unclear. But Inmarsat Chief Executive Rupert Pearce said March 5 that the three-year LightSquared bankruptcy now appears to be heading to a denouement.

Inmarsat officials have said in the past three years that no matter who ends up with LightSquared — satellite-television provider Dish Network of Englewood, Colorado, which was a big bidder in the AWS-3 auction, during the bankruptcy proceeding has become LightSquared’s biggest creditor — the reorganized company has no choice but to maintain its deal with Inmarsat.

Sukawaty said Inmarsat has no regrets about staying out of the spectrum wars in the United States.

“We don’t get into the game [LightSquared’s] is in, which is speculating on spectrum values,” Sukawaty said. “Some people at the time said: ‘Well, you gave up your upside on spectrum’” in the LightSquared agreement.

“You could argue that, but on the other hand they’re in bankruptcy,” he said. “I’m not ruling out any potential in the future, but at the moment, when we turn to regulators globally, we say: ‘Listen, we’re a satellite operator, that’s what the spectrum is for.’”