Jeffrey Epstein, Chief Executive Officer, TerreStar Corp.

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Start-up mobile satellite services operator TerreStar Corp. ought to be able to breathe more easily with the successful July 1 launch and — so far — successful testing of its large TerreStar-1 satellite and its 18-meter-diameter S-band reflector antenna. Its second satellite, TerreStar-2, is already funded and construction well under way. But the mobile satellite services sector is not a normal business, and today’s financial markets are not in their normal state. Reston, Va.-based TerreStar, in short, is not out of the woods.

TerreStar is already assured of a place in the record books since the 6,900-kilogram, Loral-built TerreStar-1 is the largest commercial satellite ever launched. The same is true for its Harris Corp.-built S-band antenna.

But the company faces the same challenges as other mobile satellite operators looking to capitalize on what is known in the United States as the ATC opportunity — regulators’ willingness to permit mobile satellite players to deploy a terrestrial mobile network, the Ancillary Terrestrial Component, using the same frequencies as its satellite.

Funding ATC rollout will not be easy, and so far none of the mobile satellite providers has solved the problem by attracting a strategic or financial investor willing to finance the ground system.

TerreStar Chief Executive Jeffrey Epstein said he is focused on solving one problem at a time, all the while adjusting to whatever unforeseen challenges are presented.

The company has already demonstrated that it and its investors — currently led by satellite-television provider EchoStar Corp. and the Harbinger hedge fund — know how to accelerate and decelerate in a hurry. TerreStar had four employees in December 2005, 175 in December 2007 and around 96 at the end of 2008.

As it moves toward completing development of the chipsets and other ground gear to provide high-speed voice, data and video services in North America, the company’s next big challenge will be to find additional cash to continue funding operations through 2010.

Epstein spoke to Space News staff writer Peter B. de Selding.

Your satellite was launched July 1. What is its status?
Things are looking very good. All the systems are performing well. We had a great orbital insertion by Arianespace. We are continuing our in-orbit testing and we expect to complete the process by mid-August.

A smaller version of your S-band antenna is on Eutelsat’s W2A satellite launched in April and has a reported anomaly that caused you to delay your launch. Were you able to confirm that this problem won’t affect you?
I don’t know much more about their antenna’s situation than what has been made public. We did all the testing we could before launch. We have been very cautious in proceeding, and this was a difficult time for us before launch. Obviously it doesn’t do us a lot of good to have a satellite in orbit if it doesn’t work. We did as much as we could to quash any concerns we might have had. There were a lot of sleepless nights and our vendors — Loral and Harris — really stepped up.

The Eutelsat W2A antenna is for Solaris Mobile, which is a competitor of yours to the extent that you are asking European authorities to reconsider your bid for S-band spectrum over Europe. Did that curb the information flow from Eutelsat to you about the antenna problem?
Did nondisclosure agreements and U.S. technology-export rules also block information? I think everyone operated within the limits of the parameters that they had. There certainly were a lot of factors floating around out there — the whole European Union legal procedure, then the W2A antenna issue. We tried to play nicely together, and we didn’t think Eutelsat was unnecessarily withholding information.

You have an Aug. 30 deadline with the U.S. Federal Communications Commission (FCC) to certify your satellite’s service availability. What does that entail?
It’s a self-certification that we will make to the effect that our satellite is functioning as planned — a fairly straightforward procedure.

What is the status of the TerreStar-2 satellite?
It is at an advanced stage of construction at Space Systems/Loral. It will be used as a ground spare per the regulatory requirements. It is basically a clone of TerreStar-1, and its remaining milestone construction costs are being funded through a dedicated $100 million credit facility.

Your TerreStar-2 credit facility cannot be used for other corporate purposes, only for TerreStar-2?
That’s correct.

You had talked about using TerreStar-2 as your candidate for the European spectrum. You have since appealed the European ruling against your candidacy — a legal process that will take months. Is it worth the company’s time?
We think it is. We obviously felt that we met the criteria, and we continue to think that this is extremely valuable spectrum in Europe. Our belief remains that we can use the ecosystem we have developed in the United States over the past few years to benefit a European system. So we don’t view it as a distraction.

You have talked about your roaming agreement with AT&T. Can that be put into effect as soon as your satellite is operational?
Yes, it can start right from the get-go. We have a reciprocal roaming agreement with AT&T — their customers can roam on our network, and our customers on theirs. We don’t have any distribution networks in place yet, however.

At current cash-burn rates, when will your available cash run out?
We’re funded into 2010. The good news is that TerreStar-1 is paid for, and TerreStar-2 is covered by the credit agreement. Our handset/chipset development is covered by cash on hand. With the launch of TerreStar-1 we have cleared our big capital expenditure hurdle. Our job now is to continue to execute on our plan. We need to get into service, demonstrate the system’s performance and start generating some revenue.

What are your likely sources of financing you think will be available to you?
The timing for a public equity raise does not look good at this point given where the markets are. I would say that our largest shareholders — Harbinger and EchoStar — would be among the most likely sources if we can prove that we can execute on our plan. Once we do, then I think the financing will come together.

The global economy — the U.S. economy in particular — has changed a lot since Harbinger and EchoStar agreed to back you. Have you been reassured that they’re still with you?
The world has indeed changed since we started and we have adapted to it. When we began, we planned to roll out ATC in the top 10 U.S. metropolitan areas. Back then, if you wanted to raise $500 million in high-yield debt, you didn’t need much more than a PowerPoint presentation. Now we have to show real revenue, and we have to modify our plans in lock step with the economy. Both these shareholders have been very supportive and continue to be.

Your competitor, ICO North America, backed by cellular pioneer Craig McCaw, launched its satellite in mid-2008 but has since run aground because of financial problems. It recently filed for Chapter 11 bankruptcy reorganization. Why not find a way to merge with ICO or purchase its asset?
Certainly combining their spectrum with ours to have 40 megahertz of spectrum is a very valuable proposition for ICO and TerreStar alike. An ATC offering with 40 MHz is much more attractive than one with 20 MHz. They’re obviously having their issues now with their [bankruptcy] filing, but combining the two does make a lot of sense on paper.

Is it just a question of ego, that neither company’s lead investors want to lose face?
There are egos involved, but there are also a lot of other moving pieces on both sides. It’s got to make fiscal sense for both companies. It’s the sort of decision that would have to be handled at a level above the management of both companies.