Realising the ATC gold rush

Ever since the FCC first awarded the initial ATC spectrum licences, the question over the true value of that spectrum has remained a constant source of debate. There has been a pervading argument that the ATC licence holders would only truly realise the…

Ever since the FCC first awarded the initial ATC spectrum licences, the question over the true value of that spectrum has remained a constant source of debate. There has been a pervading argument that the ATC licence holders would only truly realise the value of their spectrum when the large wireless telcos run out of capacity for their services and require a new batch of spectrum.

The point follows that the huge upfront costs of building a satellite system to meet the milestone requirements of the licence would be more than offset by the eventual value that could be realised by selling spectrum capacity to those telcos. This logic attracted a significant amount of investment as spectrum speculators lined up to bet on the future value of ATC.

Possibly the most well known of these has been Harbinger Capital Partners. The hedge fund made headlines in mid-2008 when it revealed plans to acquire Inmarsat through ATC licence holder Mobile Satellite Ventures (now SkyTerra), in which it held a 47.5% stake. Since then, Harbinger has continued to build its stakes in both SkyTerra and its ATC rival Terrestar, betting all its chips on the perceived long-term value of ATC spectrum.

Now, having completed its US$262.5m takeover of SkyTerra, Harbinger has finally played its hand. The hedge fund has revealed its intention to create a nationwide hybrid broadband mobile 4G network by the end of 2015.

This network would use spectrum from both SkyTerra and Terrestar, as well as 13MHz of terrestrial spectrum that the hedge fund already owns or has access to. Harbinger also plans to utilise some of Inmarsat’s North American L-band spectrum via the satellite operator’s cooperative agreement with SkyTerra.

The total cost to roll out the project has been estimated at more than US$4bn, and will involve the construction of approximately 36,000 terrestrial base stations. Once complete, Harbinger would then sell wireless spectrum on a wholesale basis to retail distribution customers, including the mobile service providers.

The sheer capex cost of rolling out the terrestrial component of the network has always been seen as a major impediment to some of the business plans of the ATC licence holders, constrained as they are by somewhat limited budgets. However, rather than wait for a terrestrial partner to appear, Harbinger is subscribing more to the “build it and they will come” mantra. Whether this proves successful remains to be seen, but we will soon find out whether the ATC spectrum bet will pay off.

European S-Band in holding pattern

While Harbinger has put US ATC spectrum in play, it would be fair to say the European S-Band licence holders have not yet settled on what the best use of the frequency is.

The European Commission awarded Inmarsat and the SES-Eutelsat joint venture Solaris Mobile 15Mhz each of S-Band spectrum in 2009. It did so under the condition that both licensees would complete development and deployment of the satellite systems required to bring the spectrum into use by May 2011.

As we move into the final 12 months prior to that deadline, it is difficult to envisage that the Commission’s requirements will be met.

Inmarsat has yet to announce any solid plans for an S-Band satellite. Its official stance is that it plans to build a satellite, EuropaSat, through a separate stand-alone subsidiary, for which it requires other investment partners. It is now highly unlikely that Inmarsat will have the necessary coverage in place to satisfy the Commission deadline.

Solaris did have a satellite in orbit at the time of the award, but the S-Band payload malfunctioned soon after launch. This left Solaris with a small amount of useable S-Band capacity that allowed it pass a number of Commission milestones, but not enough to roll its services out on a large scale. It too requires another satellite to fulfil the full sweep of its service requirements, and again, it is difficult to see that any new Solaris payload will be ready by May 2011.

The timetable issue has always been contentious. Inmarsat has claimed in the past that the Commission created the schedule based on the position of Solaris, rather than any of the other applicants.

An added difficulty is that no leading application has been established. Mobile TV, so vaunted in 2007, has proved to be a busted flush. Inmarsat does not see it as an opportunity, while Solaris has reported there is little appetite in most European markets.

The most viable use for European S-Band is in the realm of 4G and other multi-band internet/voice services. Solaris is already preparing an initial hybrid network to be rolled out by the end of this year.

It remains to be seen how the Commission will handle the process. Inmarsat and Solaris were the strongest S-Band applicants by a distance, and that remains the case. There will, however, need to be a rethink on when and how the spectrum will be brought into use.