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LightSquared Accelerates Access to L-Band Satellite Spectrum

FCC Waiver Gives Planned Satellite Service Viability

Reston, Virginia-based LightSquared said on January 28, 2011 that it has delivered notice to Inmarsat for the triggering of Phase 2 of the Cooperation Agreement between the two companies whereby LightSquared will lease L-band spectrum from Inmarsat for an initial cost $115m per year. The annual cost will increase 3% per year thereafter.

Under the Cooperation Agreement originally signed in December 2007, Inmarsat and LightSquared designed a two-phase plan aimed at increasing the amount of contiguous spectrum available to both parties and at providing LightSquared with enhanced operational flexibility for the deployment of its 4G-LTE integrated terrestrial and satellite network.  LightSquared triggered Phase 1 of the Cooperation Agreement in August of last year, and is currently making a series of payments to Inmarsat that will total $337.5m by the middle of this year. 

LightSquared chmn and ceo Sanjiv Ahuja said that the company is “experiencing very strong demand for capacity on its 4G-LTE wholesale network,” and for that reason had decided to accelerate the triggering of Phase 2.  He noted that the company will have use of up to 59 MHz of terrestrial and L-band Ancillary Terrestrial Component (ATC) spectrum across the U.S. and Canada once Phase 2 is fully executed, a process which is expected to take 30 months.

It seems to us that, whether or not claims of “strong demand” are valid, the FCC’s decision two days earlier to grant LightSquared a waiver of the ATC Integrated Service Rule may have been at least as critical to the timing of the Phase 2 trigger.  The waiver will allow LightSquared’s wholesale customers to provide terrestrial-only handsets to its subscribers, as opposed to the often clunky dual-mode satellite/terrestrial devices.  The waiver was supported by tire-kicker T-Mobile, for one.  Though T-Mobile is reportedly also considering a purchase of spectrum from Clearwire, the number 4 carrier may now give a LightSquared resale arrangement serious thought.

How Cheap is Cheap When it Comes to Spectrum?

LightSquared management said at a recent industry conference that it has invested a “modest” $0.20 per MHz POP for its spectrum.  That implies somewhere in the neighborhood of $4b if you assume 340m U.S. and Canadian POPs at 59 MHz, although some reports we’ve read indicate that not all of the 59 MHz will be usable for LightSquared’s planned system. LightSquared’s investment to date is nearly $3b according to its web site and future spectrum lease obligations are said to exceed $2b.  And then there’s the company’s 8-year deal with Nokia Siemens Networks, which obliges LightSquared to invest $7b in infrastructure…It sounds to us like the aggregate investment could approach $10b before all is said and done.

Meanwhile, on the topic of spectrum values, LightSquared may have spent “just” $0.20 per MHz POP, but despite the fact that some analysts have suggested that Clearwire’s spectrum auction will generate closer to $0.50 per MHz POP, not all followers agree, and the offer made by DISH Network (Nasdaq:DISH) earlier this week for bankrupt DBSD and its S-band satellite spectrum, which implied a value of just $0.17 per MHz POP, gives credence to the naysayers.  Now that the FCC has paved the way for terrestrial-only use of these spectrum bands—which by the way have more attractive propogation characteristics than Clearwire’s 2.5 GHz spectrum—we  wonder if earlier estimates for the value of Clearwire’s excess spectrum may have been on the high side.

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