CAPITAL CURRENTS - Satellites and Stimulus Loans
And a big political mess.
In May 2009, I wrote optimistically about the expected resurgence of the mobile satellite service (MSS) business. Well, it didn’t happen. Not only that, but Globalstar recently had part of its satellite authorization yanked by the FCC. The fallout from that FCC decision may cause a huge default in the federal broadband stimulus funding, resulting in a big political mess. And besides, we can’t be sure those particular funds were really going to unserved areas.
In that column last year, I wrote about MSS operators’ ability to use some of their satellite spectrum for ancillary terrestrial component (ATC) – basically a terrestrial cellular network that shares spectrum with their satellites. Globalstar is the only MSS operator that did deploy ATC service – at least sort of. What Globalstar did was to lease terrestrial spectrum capacity to Open Range Communications, which then went to the Agriculture Department’s Rural Utilities Service (RUS) for a broadband stimulus loan. And based on their deal with Globalstar and their plan to deploy WiMAX technology in 546 rural areas, they got the loan – to the tune of $266 million.
While that was going on, Globalstar was at the FCC asking for waivers of some of the FCC ATC rules. The FCC insists that the terrestrial ATC service be “ancillary” to the satellite service, and the Commission has a number of rules in place to make sure that the spectrum is not used for a solely terrestrial mobile service. Globalstar’s existing satellites could not meet those requirements, but it promised that it would have a new system of 24 satellites deployed by July 1, 2010, that could. So in 2008, the FCC granted Globalstar a 16-month waiver of the ATC rules.
But the new system has not been launched. There will be at least a year’s delay in deploying the 24 new satellites. Globalstar claimed that the delay was beyond its control, due to an earthquake in Italy that shut down the Thales Alenia Space manufacturing plant, where key components were being made, for eight months. The FCC found that the real cause for delay was that Globalstar ran into financing problems and failed to make payments to Thales for several months, so Thales accordingly slowed work.
A further complicating factor is that the existing Globalstar satellites are broken. The Globalstar system uses spectrum around 1610 MHz (“L-band”) for uplinks and 2490 MHz (“S-band”) for downlinks. But the S-band transmitters on the satellites have become “increasingly impacted by degradation.” That is to say that there are periods of time each day, at any given location, where they don’t work.
One of the FCC requirements for ATC is that the terrestrial systems use both of the frequency bands assigned to the MSS service, and that the terrestrial terminals have two-way communication with the MSS satellites. But Open Range decided to deploy its terrestrial WiMAX system using terminals that operate only on Globalstar’s S-band frequencies and that do not use the L-band component at all. So they cannot communicate with the Globalstar satellites. That’s a violation of the FCC’s ATC rules but was allowed temporarily by the 16-month waiver in 2008.
Then in December 2009, Globalstar revealed the satellite launch delays to the FCC and asked for an additional 16-month waiver of the ATC requirements. In mid-September 2010, the FCC came back with a loud “NO” and revoked Globalstar’s ATC authorization, which had the effect of canceling the spectrum lease.
Seeing the writing on the wall, Open Range submitted its own request to the FCC for authority to continue to operate its S-band WiMAX system in case Globalstar’s authorization was yanked and the spectrum lease was cancelled. The FCC said “NO” to that also, but it gave Open Range until January 2011 to continue in operation while it finds other spectrum to use.
It’s uncertain whether the Open Range WiMAX terminals can operate on other frequencies, but the S-band spectrum it now uses is adjacent to the spectrum that Sprint and Clearwire are using for WiMAX, so maybe that factor provides Open Range with a way to continue serving its presumably rural customers.
In the days leading up to the FCC’s September 2010 decision, the politically appointed head of the RUS wrote to the FCC asking that Open Range be granted authority to continue to use the S-band frequencies. He said that its $266 million loan to Open Range was the single-largest loan in its broadband stimulus program, that the Open Range business plan might fail unless it could continue to use the ATC spectrum, and that a default might result in a major reduction in the RUS loan program. But then, in anticipation that the FCC would not agree, the RUS decided to suspend further loan advances to Open Range.
Oh, and by the way, is Open Range really serving rural areas without any other broadband service? Where are its customers located? Sorry, that’s all confidential because Open Range says disclosure could aid competitors. But wait: If the RUS loans are supposed to be used in unserved areas, then Open Range shouldn’t have any competitors. Hmmm. ...