The decision by Mobile Satellite Ventures (MSV) to reshuffle the deployment schedule for its three large satellites likely will cause MSV to lose its U.S. license for one of the satellites, forfeit a bond payment and increase its satellite construction costs, MSV said in a note to its bondholders.
The Reston, Va., company, which currently operates two mobile communications satellites over North America, also says it will ask the U.S. Federal Communications Commission (FCC) for permission to waive the requirement that MSV build a ground spare satellite for its future high-speed mobile communications system.
The system features a network of ground-based signal amplifiers, called Ancillary Terrestrial Components, that will cost between $500 million and $2.6 billion to deploy, MSV says in its note to bondholders. The ground-based terminals, much like a cellular network’s base stations, permit the MSV signal to reach users in urban canyons and inside builders — areas where a satellite signal cannot reach.
The company says that its two satellites over North America — one using a U.S.-registered slot, the other in a Canadian orbital position — should be considered as mutual in-orbit backups, “replicating the manner in which we operate today with our existing satellites,” MSV says in the document. The company’s current FCC license includes the requirement for a spare satellite in addition to those in orbit.
London-based Inmarsat, an MSV competitor and possible future partner, has also said it would attempt to persuade the FCC that an in-orbit satellite used for other purposes should be considered an in-orbit spare. Inmarsat has two new L-band satellites in orbit to provide high-speed mobile data links.
A third satellite will be necessary to provide global coverage for the Inmarsat high-speed system, called BGAN. That third satellite, which is built and ready for launch, is planned to cover the Pacific Ocean region. But it could be used as a spare for the satellite serving the Americas, Inmarsat officials have said.
MSV announced May 24 that it had modified its contract with Boeing Satellite Systems International of El Segundo, Calif., so that its two North American satellites will be completed first. Under the contract modification, the U.S. satellite will be launched in 2009, with the Canadian satellite orbited in early 2010.
The modification “reflects a need in the marketplace to focus on North America as a priority in launching an advanced ubiquitous network solution and reflects a better return on our investment for our shareholders,” MSV President Alexander Good said in statement accompanying the announcement.
Shifting the South American satellite into third position will force MSV to miss FCC milestone deadlines, MSV says in its note to bondholders. That will force the company to lose its current FCC license for this satellite, and could mean the company will have to forfeit a $2.25 million bond MSV paid as part of the FCC license for the satellite. FCC bond payments are deposits made on receipt of a license and are refunded in tranches once the company meets certain construction and launch milestone deadlines.
MSV’s January contract with Boeing is valued at $1.083 billion. This figure includes the construction of three satellites and the payment of interest on the satellite-performance incentives that are due after the satellites’ launch. These incentive payments, to be paid over the years of the satellites’ life in orbit, cover 25 percent of the contract’s value.
The $1.083 billion does not include the satellites’ launch or insurance, nor does it include options for two additional spacecraft.
MSV estimates that if it scraps its South American satellite and limits itself to two spacecraft over North America, its space segment costs — construction and launch of two satellites, insurance and associated ground installations — would be $1.1 billion.
This figure does not include penalties that would be owed to Boeing following termination of the contract for the South American satellite.
Contract payment terms call for MSV to pay Boeing nearly $98 million in 2006 and nearly $319 million in 2007. But the company “has an option to defer certain contractual payments after full construction commences, with any deferrals to be repaid in full prior to satellite shipment,” the MSV note to bondholders says.
For the three months ending March 31, MSV reported a net loss of $10.7 million on revenues of $8.1 million. Following a bond issue, the company had $521 million in cash as of March 31.
Like other mobile satellite operators seeking to deploy a hybrid mobile communications network using satellites and ground signal amplifiers, MSV is seeking a partner to share the costs of system deployment, especially the cost of the Ancillary Terrestrial Components. The note to bondholders and the first-quarter earnings statement do not provide an update on the status of this search.
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