More Questions than Answers in Harbinger SkyTerra Takeover

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PARIS — U.S. hedge fund Harbinger’s written promise to U.S. regulators to spend billions of dollars, starting immediately, to build a satellite/terrestrial mobile broadband network in the United States has left many questions unanswered. Chief among these questions is what Harbinger — which has invested in three mobile satellite services providers and is acquiring full control of one of them — plans to do with the other two.

Other questions concern whether New York-based Harbinger can line up sufficient co-investors to make good on its promise, and whether the mere fact of Harbinger’s announcement will cause other companies, particularly cellular network operators, to invest in the long-struggling mobile satellite services business to leverage the satellite companies’ radio spectrum assets.

Harbinger Capital Partners’ long interest in stitching together a mobile-broadband network using radio spectrum given to mobile satellite operators has long been known. But the company’s willingness to make aggressive deployment-milestone commitments, including a guarantee of offering service to “at least 260 million people” by early 2016, was an unknown and breathtaking feature of its bid for approval to acquire mobile satellite operator SkyTerra Communications.

Harbinger’s purchase of SkyTerra was approved March 26 by the U.S. Federal Communications Commission (FCC). The decision also disclosed the deployment schedule that Harbinger had outlined in private to the FCC in late February as a condition of the deal. Harbinger will be using ground-based signal boosters employing the same L-band radio spectrum used by the two SkyTerra satellites planned for launch in the next 12 months.

“Excluding satellite coverage, Harbinger has committed to a build-out schedule of its 4G terrestrial network that will provide coverage in the United States to at least 100 million people by Dec. 30, 2012, at least 145 million people by Dec. 31, 2013, and at least 260 million people by Dec. 31, 2015,” the FCC said in its March 26 approval of Harbinger’s takeover of SkyTerra.

The FCC order includes a seven-page letter from Harbinger’s legal counsel of Goldberg, Godles, Wiener & Wright reiterating the milestone guarantees.

The letter does not say how much Harbinger expects to spend to install some 36,000 terrestrial base stations along with consumer handsets, network operations centers and other pieces of the mobile-broadband network. But industry officials, using the experience of cellular network operators, have estimated the necessary capital investment at several billion dollars.

Tim Farrar of TMF Associates of Menlo Park, Calif., said in an April 2 interview that a project such as this is likely to carry a $4 billion capital cost through 2013 if Harbinger is to meet its deadlines.

In addition to now owning all of SkyTerra, Harbinger owns some 44 percent of TerreStar, whose large S-band satellite was launched in 2009, and 29 percent of London-based Inmarsat, the veteran mobile satellite services provider.

Harbinger in 2008 had announced a plan to have SkyTerra purchase Inmarsat in a combination of two L-band mobile-satellite competitors. Those plans do not figure in Harbinger’s FCC letter. But Harbinger does plan to use parts of Inmarsat’s L-band spectrum to increase the bandwidth offered by its terrestrial network. In a December 2007 agreement, SkyTerra agreed to pay Inmarsat $115 million per year for the use of this spectrum in North America — a cash windfall for Inmarsat, especially since the company has no current plans to roll out its own terrestrial/satellite network.

Using spectrum licensed to SkyTerra by virtue of the company’s investment in its satellites, plus the Inmarsat spectrum and other frequencies that Harbinger has secured separately, the proposed network will be a wholesale distributor of mobile-broadband capacity for cellular network operators, manufacturers of mobile handsets and personal computers and other consumer-electronics provides, according to the Harbinger disclosures to the FCC.

Harbinger did not make any mention of whether Reston, Va.-based TerreStar and its S-band satellite and spectrum would play a role in the system’s |deployment.

Harbinger also did not disclose the identity of its co-investors in the network. In its March 26 statement on the FCC’s SkyTerra acquisition approval, Harbinger Chief Executive Philip A. Falcone said: “The FCC’s broadband policies have given us the confidence to make a series of investments that will bring new competition and innovation to all Americans. This announcement by the FCC sets the stage for the launch of our business plan whose objective is nothing less than to revolutionize how Americans use and experience wireless communications in the 21st century.”

If the Harbinger network is developed as planned — and if it is not, the FCC will annul the SkyTerra acquisition — it will mean the end of a decade-long wait by U.S. regulators to secure a financially viable future for mobile satellite services in the United States.

Before Harbinger and Falcone came on the scene, cellular pioneer Craig O. McCaw had convinced the FCC that no mobile satellite operator in the United States could survive unless it was allowed to use, free of charge, its satellite spectrum to deploy terrestrial towers to ensure wireless connectivity in places satellites cannot reach.

Despite the broadening coverage of terrestrial wireless technologies including WiMAX and LTE (Long-Term Evolution), U.S. regulators believe that for disaster recovery and emergency assistance, the United States needs a mobile satellite services provider.

The FCC’s agreement to permit mobile satellite operators to deploy such a terrestrial network — called an Ancillary Terrestrial Component (ATC) — on condition that they maintain a satellite service paved the way for a Wall Street fascination with ATC potential.

McCaw and his partners spent well over $1 billion through mobile services startup ICO Global.

ICO has gone through Chapter 11 bankruptcy reorganization and now its North American affiliate DBSD North America is in the middle of its own Chapter 11 reorganization.