Verizon, AT&T Cry Foul as FCC Bars Wireless Giants from SkyTerra Spectrum

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PARIS — U.S. hedge fund Harbinger Capital has accomplished in less than a week what the mobile satellite services industry, promoted by Wall Street, has failed to do despite years of effort: convince U.S. cellular-network operators that they should take an interest in the satellite companies’ radio spectrum assets.

Intended or not, Harbinger’s proposal to all but deny AT&T and Verizon access to spectrum held by mobile satellite operator SkyTerra Communications elicited immediate protests from the two largest wireless carriers. The promise that the two wireless giants would not be able to purchase the SkyTerra spectrum was accepted by the U.S. Federal Communications Commission (FCC) as one of the conditions attached to Harbinger’s purchase of Reston, Va.-based SkyTerra.

The FCC’s decision was published March 26. Verizon and AT&T, which had not objected to Harbinger’s SkyTerra purchase, immediately said the FCC’s condition was unfair and not in keeping with the U.S. National Broadband Plan, published in mid-March, that calls for the most efficient use of the spectrum resource.

On March 31, AT&T filed a blistering petition to the FCC asking it to rescind the decision to forbid Harbinger/SkyTerra from leasing any of its spectrum to either of the two biggest U.S. wireless carriers without express FCC authorization.

Another condition stipulates that Harbinger/SkyTerra, which is positioning itself as a wholesaler of spectrum, will not derive more than 25 percent of data traffic on its system in any given region from the two wireless companies.

In its FCC protest, AT&T says the two conditions were never made part of the public record in the FCC review of the Harbinger purchase. The companies were left to discover the clauses, which came “completely out of the blue,” when the FCC’s decision was made public March 26, AT&T says, adding that the decision “represents agency action at its worst.”

The FCC’s ruling — “naked favoritism transparently designed to handicap the ability of AT&T and Verizon to enter into commercial spectrum and resale arrangements that the commission otherwise encourages as beneficial to consumers, without any showing that any such transaction could harm consumers — cannot stand,” AT&T says [emphasis in original]. The FCC decision does not mention AT&T or Verizon by name. Instead, it says only that the SkyTerra spectrum may not be leased to “the largest or second-largest wireless provider” without getting formal FCC |approval.

The FCC reasons that keeping the two biggest carriers out of the SkyTerra spectrum will spread the spectrum wealth among more players, increasing competition and, ultimately, favoring the deployment of mobile broadband across the United States.

Paul deSa, chief of the FCC’s office of strategic plans and policy analysis, in a blog published March 29, defended the decision. “These [Harbinger] commitments — building out the network to 260 million Americans by 2015 and allowing the FCC prior review of potential leases of spectrum or capacity to the two largest incumbent carriers — do not prohibit any specific transactions,” deSa said. “But they do provide some reassurance that the approval will ignite new broadband competition while protecting the public from any potential harms.”

The FCC did not appear overly concerned with the fact that Harbinger’s proposal, which will require several billion dollars of investment, did not list any strategic or financial partners that will be sharing the cost.

“Although the specifics of their business model are obviously highly confidential due to their competitive sensitivity, we were gratified that Harbinger volunteered commitments that were both consistent with their plans and assured the FCC that the promised public interest benefits of the transaction would indeed materialize,” deSa said in his blog.

Harbinger said it has begun development of LTE, or Long-Term Evolution, hardware, and that chipsets are already in development. Modems will be available commercially starting late this year, with handsets to be on the market by late 2011. Trial service in Denver and Phoenix will begin in 2011, “with a commercial launch before the third quarter of 2011,” Harbinger says in the summary of its business plan attached to the FCC’s March 26 decision.