LightSquared Cash Jump-starts Inmarsat Spectrum Clearing

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FISH CAMP, Calif. — The company planning a multibillion-dollar U.S. mobile broadband network using satellite and terrestrial links on Aug. 18 announced it will begin making payments to mobile satellite services provider Inmarsat that will total $337.5 million over the next 18 months to secure the needed radio spectrum.

The announcement by Reston, Va.-based LightSquared was confirmed by London-based Inmarsat and adds credibility to LightSquared’s commitment to U.S. regulators to provide mobile broadband to at least 100 million Americans by December 2012, and at least 260 million by December 2016.

LightSquared, which is owned and financed by hedge fund Harbinger Capital Partners of New York, has made a series of announcements in recent weeks naming providers of its system’s components, notably an eight-year, $7 billion contract with Nokia Siemens to build and install the ground network, including some 36,000 terrestrial base stations. But it has not disclosed any strategic investors that will share in the financing, raising questions about whether Harbinger would continue the project.

LightSquared did not accompany its announcement on Inmarsat with any disclosures of new partners. But the announcement is important because the LightSquared 4G mobile broadband network cannot function without months of work by Inmarsat to adjust Inmarsat’s use of L-band for its own customers to make way for LightSquared.

Inmarsat and LightSquared in December 2007 entered into a series of agreements on coordinating the use of L-band spectrum to give LightSquared access to a contiguous slice of L-band spectrum for its network, thus permitting broadband throughput. Inmarsat has estimated that this first phase of its L-band spectrum clearing would take 18 months.

LightSquared’s self-imposed deadline, made in commitments to the U.S. Federal Communications Commission, was viewed as impossible to achieve unless it began making immediate payments to Inmarsat.

LightSquared on Aug. 18 said it had triggered the first of two phases of its Inmarsat agreement, paying an initial $87.25 million and promising payments of $40 million in cash every three months for the next 15 months. Once the 18-month spectrum-clearing work by Inmarsat has been completed, LightSquared will make a final payment of $56.25 million to complete the $337.5 million obligation under what the two companies call Phase 1 of their agreement.

In return, Inmarsat said it will immediately begin “a process of transition to a modified spectrum plan to increase spectrum contiguity. This process is expected to take 18 months and involve the cost of certain network modifications that Inmarsat will incur.”

LightSquared Chief Executive Sanjiv Ahuja said the decision to trigger Phase 1 of the Inmarsat agreement “represents a significant milestone in LightSquared’s plan to build the nation’s first wholesale only 4G-LTE wireless broadband network … [and] will now give us the contiguous spectrum we need to support additional network capacity to meet the growing demand for wireless data.”

In Phase 2 of the agreement, LightSquared has agreed to pay Inmarsat $115 million a year if it elects to use some of Inmarsat’s L-band spectrum over North America. Inmarsat said that to implement this phase, which would require adjusting some of its customers’ equipment, would take 30 months. Before it was purchased by Harbinger, LightSquared officials had said they would undertake Phase 2 investment only when it had secured distribution partners that have agreed to share the cost of the deployment of the system, known as an Ancillary Terrestrial Component, or ATC.

LightSquared has two large L-band mobile communications satellites under construction, with the first scheduled for launch late this year or early in 2011. Its use of the L-band spectrum for its terrestrial ATC network, which will be handling the vast majority of the traffic, is conditioned on the company’s maintaining a satellite service as well to assure service to areas unserved by terrestrial broadband.Jim Muncy, a space policy consultant here, said the $7 billion the bill authorizes over three years for the new rocket may not be enough to undertake a major development program while also sustaining the U.S. solid-rocket motor industrial base, which has more capacity than business.

“If you’ve got to spend $600 million or $700 million a year to keep the base alive, that’s a fairly substantial fraction of your heavy-lift launch development budget keeping that industrial capacity in place,” he said. “It’s very expensive to have those fixed costs while you’re trying to develop something new.”

Alliant Techsystems (ATK), the Minneapolis-based company NASA picked to build Ares’ solid-rocket-motor main stage, says keeping the program going would cost no more than $429 million a year. Infrastructure investments, coupled with reduced NASA oversight, could bring the annual cost down to around $300 million, a figure that includes continued development of the Ares 1 main stage, according to ATK spokesman George Torres. “There are a number of misconceptions about our program and infrastructure costs that seem to have become ‘urban legends’ that have been quoted at twice the actual costs,” Torres said.

The Senate’s goal is to assure an immediate focus on developing the rocket’s core stage “to ensure the most effective transition from the Space Shuttle and other programs,” the report said.

“The use of existing technologies, capabilities, facilities, and infrastructure to the maximum possible extent, coupled with the immediate initiation of design and development activities, will provide the greatest opportunity to retire the development costs for this vehicle by the end of 2016 while ensuring the continuation of a critical national capability,” the report states.

Muncy characterized S. 3729 as a compromise that appeals to a broad swath of stakeholders while starting to explore sooner rather than later, but said “ultimately, that may conflict with the real costs of keeping everyone on the team,” he said.

Although the Senate authorization bill does not fund NASA directly, it sets budgetary guidelines for congressional appropriators to follow in drafting 2011 spending legislation for the agency. Before S. 3729 can become law, it must be reconciled with companion legislation approved July 22 by the U.S. House Science and Technology Committee. Although the House bill, H.R. 5781, authorizes the NASA funding profile proposed by the White House, it outlines a different schedule for building a heavy-lift rocket, guts funding for development of commercial crew and cargo transport vehicles, and requires NASA to develop a government-owned backup to any such capabilities by 2015.

With lawmakers busy campaigning in their districts during the August break, Senate and House staffers are planning to meet later in the month to discuss their respective bills. “Some people think we need to do a preconference so we have an agreed-to bill by the time we get back in session” Sept. 14, a congressional aide said. Under this scenario, elements of H.R. 5781 could find their way into a modified version of S. 3729.