Nerves About LightSquared May Have Left Field Clear for Dish to Buy Spectrum

(Jul 20 2011) 4G , LTE

1.  By Caroline Gabriel, Research Director, Rethink Technology Research

   It was more with a whimper than a bang that Dish Network found that its $1.38 billion stalking horse bid for TerreStar’s mobile satellite (MSS) spectrum had been successful, after a scheduled court-run auction failed to materialize because there were no other bidders. There were two more interesting aspects than this anti-climactic victory—what Dish will do with its new asset and whether the lack of competition means U.S. satellite spectrum has been fatally tainted by the controversy over the LightSquared project. 

   Dish Network must still overcome a few last hurdles—complaints to the court by Space Systems/Loral, which built the TerreStar satellites, and from AT&T, which has resold the existing satellite phone service. But these are relatively minor problems and should be sorted out without too much ado. 

   So what will Dish do with its purchase? The issue here isn’t about signals coming from a satellite, as MSS spectrum in the 2 GHz S-Band was originally designed to support, but from a terrestrial base station, using the Ancillary Terrestrial Component, which has revolutionized the business model of the MSS bands. It is this technology that underpins LightSquared’s plan to build a national LTE network in L-Band satellite frequencies—plus an FCC waiver that allows it to offer services that do not include a satellite component at all.  

   Of course, that project has run into hurdles far higher than Dish’s challenge from Space Systems/Loral, in the shape of potential interference with the GPS system in neighboring frequencies. That could drive LightSquared out of the terrestrial market or force it to move its rollout to the spectrum contained in its partnership with Inmarsat. But that would be a far more modest deployment than it envisaged in its own L-Band, with two 10 MHz x 10 MHz carriers. 

   That situation may play into the hands of Dish, which could presumably get a waiver for its band just as LightSquared did, to permit terrestrial-only services as well as satellite or hybrid ones. Although some of its new satellite capacity will likely be kept to do what Dish Network does best—broadcast some kind of TV signal—the ATC capability makes it more likely the company will do a deal with LightSquared to give it alternative capacity that is further from GPS. If Dish adds the 20 MHz of S-Band TerreStar spectrum, to the 20 MHz of similar spectrum it acquired for about $1 billion from DBSD (formerly ICO), it has enough spectrum to build a U.S.-wide LTE network that has twice the capacity of Verizon’s in 700 MHz. 

   The issue now is who will be building such a network, because right now Dish doesn’t have the cash to go it alone—so LightSquared would be a logical partner, and one currently over a barrel because of the GPS issue. With that in mind, though, why did no other kingmaker vie for the relatively affordable TerreStar assets? The mobile players are always bleating about lack of spectrum, but once MetroPCS faded from view in the TerreStar runup, no cellco was willing to bid for this prime wireless real estate. Regulatory and antitrust considerations would disbar Verizon and AT&T, but midrange players could have been tempted by a piece of contiguous, clear spectrum matched in size only by Clearwire. 

   Such contenders may well have been deterred by the controversy surrounding LightSquared, which has highlighted the risks associated with repurposing spectrum. The S-Band is half a gigahertz away from GPS, but there could still be interference issues with other neighboring bands. As commentator Kevin Fitchard points out in ConnectedPlanet: "If the LightSquared debacle has proved anything, it’s that the FCC and satellite providers didn’t perform their due diligence on these bands to address all potential interference problems. The value of these satellite bands to operators is in the conditional waivers allowing them to deploy terrestrial networks, but as the name implies, they’re conditional. If a problem crops up, the FCC can revoke the waiver, leaving the operator with a very expensive hunk of frequencies over which it can only deploy satellite services. That’s a risk few operators would be willing to bet more than $1.5 billion on." 

   Such nervousness will only enhance the perceived value of classic mobile broadband frequencies, pushing Clearwire closer to Sprint’s heart again by making its networking sharing deal with LightSquared less attractive. It also highlights the sense behind AT&T’s proposed purchase of T-Mobile USA, mainly to gain the smaller cellco’s spectrum holdings, creating the largest capacity in proper terrestrial bands outside Clearwire.  

   Such sentiments will also, naturally, increase the opposition to the anti-competitive ramifications of the deal, and it was no surprise that, hard on the heels of its TerreStar win, Dish Network was registering its protests at the AT&T/T-Mobile plan. According to a filing with the FCC on July 7, EVP of Sales Thomas Cullen and other Dish executives met FCC Wireless Bureau Chief Rick Kaplan to make the satellite firm’s opposition clear, on the grounds that the merger "would harm competition and consumers by, among other things, potentially discouraging Dish Network from entering the market to provide mobile broadband."

   Meanwhile, LightSquared itself continues to insist that it will continue with its rollout plans, in the expectation that it will eventually be allowed to switch on services even in its L-Band. It has formed a new rural initiative to stress this point, and to highlight the benefits claimed for its system in terms of improving universal broadband access and competition. Called the Empower Rural America Initiative, the group will work with LightSquared on a number of issues, including making sure that device filters and other approaches are developed to resolve any GPS issues that relate to rural activities such as precision agriculture. The structure mirrors that of the Emergency Rapid Response Communications Team LightSquared formed last October to help first responders and public safety agencies create solutions based on its satellite networks. 

   The FCC’s Kaplan, only a few weeks into his new job, is showing signs of wanting the GPS industry to move more proactively to come to a deal with LightSquared. He told an event hosted by the Atlas Institute and the University of Colorado that one of the key challenges for the FCC is to squeeze greater productivity out of existing spectrum, and said that technology rarely changes until it is pushed to do so. Though he did not refer to LightSquared specifically, he gave as an example the fact that GPS receivers were built at a time when it was unnecessary to consider potential interference. But now, "we need to make sure we aren't locking out valuable spectrum because of inefficient transmission," he said.  

   Over at the National Telecommunications and Information Administration (NTIA), the government agency has told the FCC that it found "significant potential for harmful interference" from the LightSquared network to GPS receivers, but pledged to continue to work with all sides to test the planned LTE network. The NTIA conclusions were based on LightSquared's previous network design but the carrier last month announced a redesign to try to address GPS concerns.

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