Harbinger to create nationwide 4G network following SkyTerra acquisition

Harbinger Capital Partners has finally made its spectrum play. In completing its US$262.5m acquisition of MSS operator SkyTerra, the hedge fund revealed its plan to create a nationwide terrestrial broadband mobile 4G Long-Term Evolution (LTE) network by…

Harbinger Capital Partners has finally made its spectrum play. In completing its US$262.5m acquisition of MSS operator SkyTerra, the hedge fund revealed its plan to create a nationwide terrestrial broadband mobile 4G Long-Term Evolution (LTE) network by the end of 2015.

Harbinger is aiming to construct a hybrid broadband network that brings together its existing satellite and terrestrial wireless spectrum to provide services on a wholesale basis to retail distribution customers, such as mobile service providers and MVNOs as well as PC and consumer electronic equipment manufacturers.

To do so, Harbinger is to construct approximately 36,000 terrestrial base stations, a terrestrial cell site and backhaul network and a number of network operations centres. The total cost to roll out the project has been estimated at more than US$4bn, which does not take into account the additional commercial launch costs, such as marketing. One source suggested to SatelliteFinance that Harbinger has been sounding out banks over potential fundraising plans.

The service will begin in two trial markets, Denver and Phoenix, with a commercial launch commencing before the third quarter of 2011, which will provide service for up to 9 million points of presence (POPs). Excluding satellite coverage, Harbinger has committed to an aggressive build-out schedule that will provide coverage in the United States to at least 100 million people by December 31 2012, at least 145 million people by December 31 2013, and at least 260 million people by December 31 2015.

Harbinger’s network will cover 100% of the US population via the satellite component and ultimately over 90% of the population via its terrestrial component. By 2015, the company expects to serve more than 40 million connected consumer terrestrial devices on a wholesale basis.

In order to achieve this, Harbinger has stated that from the outset it will have access to 23MHz of spectrum, comprising SkyTerra’s 10MHz of MSS/ATC L-band spectrum, 8MHz of 1.4GHz terrestrial spectrum that it already owns and 5MHz of 1.6GHz terrestrial spectrum to which it has access.

The hedge fund also plans to enter spectrum hosting and pooling agreements including a cooperation agreement with Inmarsat for its L-band spectrum that will enable it to access an additional 30MHz of ATC spectrum by 2013. Under the co-op agreement, Inmarsat will receive approximately US$115m to lease its spectrum.

Harbinger has stated that it is discussing with other licensees ‘the possibility of hosting or pooling their spectrum in order to enable them on the terrestrial wireless network, i.e., the spectrum would be incorporated into the infrastructure of the terrestrial wireless network.’

One such licensee is likely to be Terrestar, in which Harbinger directly owns approximately 31% of the voting shares and 44% of the equity. Indeed, following the purchase of SkyTerra, Harbinger now controls approximately 49.32% of TerreStar Networks, the North American ATC licence holding subsidiary, because of the combination of Harbinger’s interests in TerreStar and SkyTerra’s 10.6% holding in TerreStar Networks.

Harbinger also owns approximately 29% of Inmarsat and back in 2008 announced its intention to merge the company through SkyTerra after it had completed its acquisition of the latter. However, this plan is now understood to be dead in the water following the activation of the L-band cooperation agreement and the sizeable cap-ex requirement for the 4G network.

Harbinger’s communications interests also extend beyond satellite-based communication, with the hedge fund owning stakes in both Leap Wireless and Sprint Nextel Corp.

FCC approve plan but anger big telcos

Harbinger’s plan was made possible by the decision of the Federal Communications Commission on March 26 to approve its acquisition of SkyTerra. In making its decision, the regulator pointed to two key areas – the public interest in the construction of a wireless broadband network in light of the National Broadband Plan and the commitment to build such a network in a tight timeframe.

The FCC stated: “We find that Harbinger’s plans to provide 4G mobile wireless broadband are a significant public interest benefit, both because of the competition it will bring in mobile wireless broadband services and because it will provide mobile wireless broadband service to traditionally underserved areas.

“We further find that SkyTerra is highly unlikely to provide this service if Harbinger does not acquire it. Although SkyTerra already has plans to launch its next generation satellite, it does not have plans to build out a terrestrial network to the significant extent that Harbinger is planning. Nor is it apparent that it could obtain the resources to do so. We therefore conclude that the potential public benefits are dependent on Harbinger’s acquisition of SkyTerra.”

SkyTerra’s first next generation satellite, SkyTerra-1, is scheduled to be launched by ILS between August and October 2010, while SkyTerra-2 is due to go up in either Q4 2010 or Q1 2011.

The FCC has, however, stipulated a number of requirements for Harbinger’s planned network. Firstly, the hedge fund must stick to its roll out commitments with SkyTerra, filing reports detailing its progress towards meeting the construction and terrestrial service requirements from October 31, 2010 and every six months thereafter. Secondly, the company shall not, directly or indirectly, lease capacity on its network to the country’s two biggest wireless carriers, Verizon Wireless and AT&T, without prior approval.

This latter condition has obviously caused consternation from the two telcos with AT&T senior executive vice president of external and legislative affairs, Jim Cicconi, quoted in the Washington Post stating, “This sort of targeted favouritism by the government has no place in free markets. Nor are we aware that Congress has vested the FCC with any authority to implement industrial policy of this nature. In short, this action is manifestly unwise and potentially unlawful.”