In recent months Globalstar has vented its frustration with the slow progress of the TLPS NPRM, telling the Commission in April that “it is time for the Commission to move forward with an order in this proceeding and realize the substantial public interest benefits of TLPS.” Nevertheless Globalstar has previously been unwilling to compromise, indicating that it would only accept approval of the rules proposed in the November 2013 TLPS NPRM and that it would not relinquish spectrum to Iridium.
However, in the face of overwhelming pressure from Microsoft, Google, Sprint and others, it seems Globalstar has now decided it will have to accept a compromise as an interim measure to avoid being stuck in limbo for many more months. In a meeting with the FCC International Bureau last Friday, Globalstar struck a much different tone, urging the FCC “to grant Globalstar the proposed ATC authority,” a term which Globalstar has always declined to use, preferring instead to refer to the Commission’s “regulatory framework for low power wireless broadband.”
Moreover, Globalstar “expressed support for the Commission’s 2013 proposal” apparently hinting at the existence of a new 2015 proposal. Looking at the elements that Globalstar “urged” the Commission to adopt (apparently Globalstar’s bottom line) compared to those that it “encouraged” or “asked” the Commission to consider (those elements that are not essential), it is clear that Globalstar now wants a grant of “ATC authority” under “proposed rules” which no longer necessarily comport with the 2013 NPRM. Globalstar also “asked” (but didn’t “urge”) the Commission to “reject the unsubstantiated technical and policy requests by [its] opponents,” suggesting that any decision on TLPS OOBE limits can be deferred.
In contrast, back in May, Globalstar “urged the Commission to adopt its proposed rules expeditiously to add 22 megahertz to the nation’s wireless broadband spectrum inventory and ease the congestion that is diminishing the quality of Wi-Fi service at high-traffic 802.11 hotspots and other locations,” i.e. to approve TLPS specifically.
This move now points the way to a near term order written by the International Bureau on the narrower matter of ATC authority for Globalstar within its existing 11.5MHz of licensed S-band spectrum from 2483.5-2495MHz, in exchange for granting Iridium’s request to share more of the L-band. That would be a close parallel to the FCC’s ruling in November 2007, when it issued an NPRM on extension of Globalstar’s ATC authority in conjunction with the last reallocation of L-band Big LEO spectrum.
I would expect the FCC to defer any potential approval of the wider 22MHz TLPS channel to a further proceeding, with more testing and analysis of interference concerns to be undertaken. The main uncertainty relates to whether the approval of ATC authority would be for full power use, along the lines of the Open Range approval (but adapted to LTE), in conjunction with protection measures for BAS, or whether the approval will be limited to the much lower power levels contemplated in the TLPS NPRM.
I would assume that high power ATC usage is likely to be approved (as it is hard to see a limited low power channel being acceptable to Globalstar), with Globalstar welcoming this ruling as offering it more flexibility to either lease a single 10MHz LTE channel to a wireless operator in the near term or to later gain approval for TLPS at the end of the further rulemaking process.
Of course the debate would then move to appropriate valuation benchmarks, which are much easier to assess for standard licensed spectrum, albeit with upwards adjustments for lack of a buildout requirement and downwards adjustments for maintaining an MSS network and creating an ecosystem for a non-standard band. In addition the potential timeline and cost must be considered for the rebanding needed to avoid interference with grandfathered BAS users.
I’m sure that some will emphasize AWS-3 benchmarks of $2+/MHzPOP as a baseline, while others will highlight the MoffettNathanson assessment that spectrum around 2.5GHz, like that owned by Sprint, is only worth around $0.40/MHzPOP, and this enormous discrepancy means that the debate about what Globalstar’s spectrum is actually worth will certainly continue. Nevertheless, approval of a high power licensed spectrum block, even if limited to only a single 10MHz LTE channel, will make it harder to argue that Globalstar’s spectrum is completely worthless.
Back in October 2012, despite their misleading press release, CTIA’s own data indicated that there had been a significant slowdown in data traffic growth and confirmed that the emperor/FCC Chairman had no clothes when talking about the non-existent spectrum crisis. Now it seems CTIA is at it again, releasing an error-strewn paper today on how the FCC’s October 2010 forecasts of mobile data traffic have supposedly proven to be “remarkable accurate.”
This groveling attempt to “renew the effort to bring more licensed spectrum to market” is clearly designed to distract from CTIA’s own release of its year end 2014 wireless industry survey results last week, which showed that US mobile data traffic only grew by 26% last year (from 3230PB in 2013 to 4061PB in 2014) compared to growth of 120% in 2013, a dramatic slowdown which CTIA conveniently ignores.
Instead CTIA is praising the “solid analytical foundation” of the FCC’s October 2010 paper, which was recognized at the time, by myself and others, to be fundamentally flawed. So perhaps its not so ironic that the CTIA’s new paper mischaracterizes the data that the FCC used, stating that the forecasts “were remarkably accurate: In 2010, the FCC’s growth rate projections predicted mobile data traffic of 562 petabytes (PBs) each month by 2014; the actual amount was 563 PBs per month.”
Firstly, the FCC did not actually state an explicit projection of mobile data traffic, instead giving an assessment of growth from 2009 to 2014, as the (simple arithmetic) average of growth projections by Cisco, Yankee and Coda (use of an arithmetic average in itself is erroneous in this context, a geometric average of multipliers should be used instead).
Secondly, the FCC was projecting US mobile data traffic, not North American data traffic, which is the source of the quoted 563PB per month (which is taken from Cisco’s February 2015 mobile VNI report). We can see the difference, because the February 2010 Cisco report (available here) projects growth for North America from 16.022PB/mo in 2009 to 773.361PB/mo in 2014, a multiplier of 4827%, whereas the FCC paper quotes Cisco growth projections of 4722% from 2009 to 2014. (The reason for the difference is that growth in Canada was expected to be faster than the US, because Canada was expected to partially catch-up with US in mobile data traffic per user over the period).
If CTIA had bothered to look at Cisco’s mobile VNI tool, which gives data for major countries, it could have easily found out that Cisco estimates US mobile data traffic grew by 32 times between 2009 and 2014, not 35 times as the FCC forecast, let alone the 47 times that Cisco forecast back in February 2010.
Moreover, CTIA completes fails to mention that Cisco’s figure for 2014 (which according to the VNI tool is 531.7PB/mo for the US, rather than the 562.5PB/mo for North America that CTIA quotes), is completely different to (and far higher than) CTIA’s own data, which is based on “aggregated data from companies serving 97.8 percent of all estimated wireless subscriber connections” so should obviously be far more accurate than Cisco’s estimates.
However, CTIA is instead running away from its own data, stating in a footnote to the new paper that:
“Note that participation in CTIA’s annual survey is voluntary and thus does not yield a 100 percent response rate from all service providers. No company can be compelled to participate, and otherwise participating companies can choose not to respond to specific questions. While the survey captures data from carriers serving a significant percentage of wireless subscribers, the results reflect a sample of the total wireless industry, and does not purport to capture nor reflect all wireless providers’ traffic metrics. CTIA does not adjust the reported traffic figures to account for non-responses.”
Compare that disclaimer to the report itself, which notes that “the survey has an excellent response rate” (of 97.8%) and that it is adjusted for non-responses (at least so far as subscribers are concerned):
“Because not all systems do respond, CTIA develops an estimate of total wireless connections. The estimate is developed by determining the identity and character of non-respondents and their markets (e.g., RSA/MSA or equivalent-market designation, age of system, market population), and using surrogate penetration and growth rates applicable to similar, known systems to derive probable subscribership. These numbers are then summed with the reported subscriber connection numbers to reach the total estimated figures.”
CTIA’s wireless industry survey states that total US mobile data traffic was 4061PB in 2014, equating to an average of 338.4PB/mo over the year. Even allowing for the fact that Cisco estimate end of year traffic, not year averages, it is hard to see how the CTIA number for Dec 2014 could be more than 400PB/mo, some 25% less than Cisco.
If we instead compare growth estimated by CTIA’s own surveys (which only provide data traffic statistics back to 2010), then the four year growth from 388PB in 2010 to 4061PB in 2014 is a multiplier of 10.47 times, whereas the FCC model is a multiplier of 13.86 times (3506%/253%) and Cisco’s projection is a multiplier of 19.51 times (4722%/242%).
Thus by any rational and undistorted analysis, the FCC’s mobile data traffic growth projections have proven to be overstated. Likely reasons for this include the increasing utilization of WiFi (which was dismissed by the FCC paper, stating that “the rollout of such network architecture strategies has been slow to date, and its effects are unclear”) and the effect of dilution, as late adopters of smartphones use far fewer apps and less data than early adopters.
Nevertheless, what the data on traffic growth does confirm is that the FCC’s estimate of a 275MHz spectrum deficit by 2014 was utter nonsense. Network performance has far outpaced expectations, despite cellsite growth being far slower than predicted (3.9% compared to the 7% assumed in the FCC model) and large amounts of spectrum remaining unused: if we simply look at the Brattle paper prepared for CTIA last month, its easy to calculate that of the 645.5MHz of licensed spectrum identified by Brattle, at least 260MHz remains undeployed (12MHz of unpaired 700MHz, 10MHz of H-block, 65MHz of AWS-3, 40MHz of AWS-4, 20MHz of WCS, and all but around 40MHz of the 156.5MHz of BRS/EBS).
Thus in 2014, the US didn’t require 822MHz of licensed spectrum as the FCC forecast (which would have increased to 861MHz if the FCC model was corrected to the supposed traffic growth of 32x, as estimated by Cisco, and the actual number of 298,055 cellsites, as reported by CTIA), but instead, as CTIA proclaims, US mobile operators enabled “Americans [to] enjoy the best wireless experience in the world” with less than 400MHz of actual deployed spectrum.
I’m told that after a fair amount of difficulty and a month or two of delay, Greg Wyler has now successfully secured commitments of about $500M to start building the OneWeb system, and he will announce the contract signing with Airbus at the Paris Air Show next week. The next step will be to seek as much as $1.7B in export credit financing from COFACE to support the project with an objective of closing that deal by the end of 2015.
This comes despite Elon Musk’s best efforts to derail the project, culminating in an FCC filing on May 29. That filing proposes the launch of 2 Ku-band test satellites in late 2016, which would presumably be aimed at ensuring OneWeb is forced to share the spectrum with SpaceX, as I predicted back in March.
Clearly Musk is not happy about the situation, since I’m told he fired Barry Matsumori, SpaceX’s head of sales and business development, a couple of weeks ago, after a disagreement over whether the SpaceX LEO project was attracting a sufficiently high public profile.
Most observers appear to think that Musk’s actions are primarily motivated by animus towards Wyler and question whether SpaceX is truly committed to building a satellite network (which is amplified by the half-baked explanation of the project that Musk gave in his Seattle speech in January, and the fact that I’m told SpaceX’s Seattle office is still little more than a sign in front of an empty building).
Google also demonstrated what appears to be a lack of enthusiasm for satellite, despite having invested $900M in SpaceX earlier this year, when its lawyers at Harris, Wiltshire & Grannis asked the FCC on May 20 to include a proposal for WRC-15 that consideration should be given to sharing all of the spectrum from 6GHz to 30GHz (including the Ku and Ka-bands) with balloons and drones (see pp66-81 of this document). Needless to say, this last minute proposal has met with furious opposition from the satellite industry.
However, one unreported but intriguing aspect of SpaceX’s application is the use of a large (5m) high power S-band antenna operating in the 2180-2200MHz spectrum band for communication with the satellites. Of course that spectrum is controlled by DISH, after its purchase of DBSD and TerreStar, and so its interesting to wonder if SpaceX has sought permission from DISH to use that band, and if so, what interest Charlie Ergen might have in the SpaceX project.
Nevertheless, it looks like Wyler is going to win the initial skirmish, though there are still many rounds to play out in this fight. In particular, if Musk truly believes that the LEO project, and building satellites in general, are really going to be a source of profits to support his visions of traveling to Mars (as described in Ashlee Vance’s fascinating biography, which I highly recommend) then he may well invest considerable resources in pursuing this effort in the future.
If that’s the case, then the first to get satellites into space will have a strong position to argue to the FCC that they should select which part of the Ku-band spectrum they will use, and so Wyler will also have to develop one or more test satellites in the very near future. Fortunately for him, Airbus’s SSTL subsidiary is very well placed to develop such a satellite, and I’d expect a race to deploy in the latter part of 2016, with SpaceX’s main challenge being to get their satellite working, and OneWeb’s challenge being to secure a co-passenger launch slot in a very constrained launch environment.
Two people have now told me that with 99% certainty, the leak about the DISH/T-Mobile talks came from T-Mobile itself, not from DISH, based on the authorship of the WSJ report. Although it might be tempting to conclude that T-Mobile is trying to prompt a cable operator to consider an alternative bid, Charter has indicated that it will focus on TWC’s MVNO agreement with Verizon to provide wireless services if its TWC bid is successful and Comcast could presumably do likewise if desired.
Moreover, it seems this was not some sort of “official” leak, but instead simply reflects general conversations which got blown out of proportion, because Bloomberg has reported that the talks, which have been going on since last summer, have not advanced significantly in recent weeks.
That still leaves the perplexing analyst event that DISH held on Tuesday, and there’s been no convincing explanation of why that event was scheduled at short notice. Nevertheless, there’s now a frenzy of speculation leaving some convinced about the “inevitability” of a merger. What none of the reports deal with at all is how T-Mobile would actually make use of DISH’s spectrum without AWS-3/4 interoperability, and even then half of DISH’s spectrum in PCS H-block and 2000-2020MHz would still have no ecosystem available.
Instead analysts simply assume that interoperability doesn’t even need to be considered, and that the FCC “buildout requirements of its spectrum are so far in the future it’s not even worth starting the discussion about the weak enforceability of those deadlines.”
Of course a merger makes all the sense in the world if you assume DISH’s spectrum is just as usable as any other spectrum and that the FCC won’t enforce its buildout deadlines (in March 2020) so DISH has all the time in the world to strike a deal at a full price. Unfortunately that simply isn’t the case, and both Verizon and AT&T know that only too well.
That’s seems to be the question Charlie Ergen is asking Verizon, with the leak of merger talks between DISH and T-Mobile to the Wall St Journal. Yesterday DISH held an analyst meeting at which nothing much of consequence was said, raising the question of precisely why DISH held that analyst meeting in the first place.
The logical conclusion is that DISH hoped it would be able to announce some sort of deal yesterday, but that wasn’t achieved, and so now there has been a decision to leak more specific details about the progress of the DISH/T-Mobile talks (which have been rumored for months). The details disclosed make it unlikely that the intent is to bring T-Mobile back to the table, given the statement that talks on valuation remain at a “formative stage”. If the leak came from the T-Mobile side then its plausible to imagine that the aim is to pressure a cable company to make a bid for T-Mobile, or simply that the WSJ made a mountain out of a molehill, given others are saying there has been no change in the situation in recent weeks.
However, (until now) I considered it more likely that DISH is sending a message to Verizon, after the breakdown of talks on a spectrum sale or leasing deal, that Ergen has other alternatives he can pursue. Its previously been reported that Verizon rejected DISH’s asking price of $1.50 per MHzPOP for the AWS-4 spectrum last summer, and even after the AWS-3 auction, I very much doubt Verizon has shifted its position on valuation significantly. For spectrum without an ecosystem like AWS-4, I would still not expect Verizon to be willing to pay much more than $1 per MHzPOP.
Nevertheless, if Verizon had been willing to commit to a partial lease of DISH’s AWS-4 spectrum and support interoperability into the bargain (perhaps with some AWS-3 licenses included to raise the average reported price), then that would have helped DISH to undertake a spectrum spinoff. By doing a deal now, I would expect DISH to also have been able to seek a compromise with the FCC by agreeing to repay the $3.3B DE discount it received in the AWS-3 auction, and thereby mitigate the bad feeling which would otherwise be likely to hamstring DISH’s ability to get help from the FCC in ensuring AWS-3/4 interoperability in the future.
So if Verizon has truly walked away for good, and cannot be forced back to the table by this leak, then I think this is unalloyed bad news for DISH. Without interoperability it is hard to see the value of DISH’s AWS-3 spectrum for T-Mobile, as I noted last week. And it is equally hard to see how agreement can be reached with Deutsche Telekom on the respective valuations of DISH and T-Mobile, especially when DT can hold out for a potential merger with a cable company in the future. So I think Verizon can still proclaim that when it comes to DISH’s spectrum, it’s heads we win, tails you lose.
Despite the delays in the launch of GX, it seems Inmarsat may be looking to stitch up an even larger share of the maritime market in the near term. Rumors are flying that Inmarsat may soon make a formal bid to acquire KVH, the largest maritime VSAT player in terms of vessels (though not in revenues), adding about 3500 more terminals to Inmarsat’s existing 2200 VSAT equipped ships.
KVH generated nearly $80M from its miniVSAT business in 2014 with an average service ARPU of $1500 per month, compared to Inmarsat’s $90M and ARPU of $4000 including equipment leases (this equates to $2500 per month after stripping out hardware, according to Inmarsat’s most recent results call, which is a more appropriate point of comparison with the KVH ARPU).
The difference in ARPUs between Inmarsat’s current VSAT business and KVH is striking, in fact KVH’s smaller V3 terminal (which has about 900 active terminals) is generating around $500 in monthly ARPU, below even Inmarsat’s FleetBB ARPU of $700 (note that the standard FleetBB package sold by KVH now only provides 20 Mbytes per month of data for $749, whereas KVH offers airtime at rates as low as $0.99 per Mbyte).
If Inmarsat does move ahead with a KVH bid, it would likely be seen as a counter to Airbus’s disposal of its Vizada business unit, because Inmarsat would then have by far the largest number of VSAT-equipped ships. Indeed it would not be surprising to see attempts by competitors to block the deal on antitrust grounds, not to mention the concerns that current KVH customers will have about potential future price increases.
However, it would also be something of an acknowledgement that GX is optimally positioned as a lower end off-the-shelf maritime VSAT service (like KVH’s miniVSAT), as a step up from FleetBB, rather than as a high end solution for cruise ships and oil rigs. KVH’s growth has slowed in the last year, with terminal shipments staying at close to 1000 per year in 2012, 2013 and 2014, but net adds and ARPUs declining. Pressure from Inmarsat will only intensify, once the low cost 60cm GX antenna is available with global coverage, so this looks like it would be a good time for KVH to sell out.
Inmarsat investors will presumably also welcome a deal, with a much clearer path established to a GX maritime business of $200M+ in annual service revenues over the next few years (though its important to note this represents a retail service business, not the wholesale spend on satellite capacity). However, the obvious question that customers will ask is whether low end price packages will still be offered for miniVSAT users, or whether Inmarsat will move them up to much higher price points, as it has done with FleetBB over the last few years.
And what will be the alternative for these users: will it be other VSAT solutions, or will it be the new broadband services (comparable in capability to FleetBB) offered by Iridium’s NEXT constellation? It will take some time for either of these options to emerge, with low cost small Ku-band VSAT antennas needed for the former, and completion of the NEXT constellation needed for the latter. That provides a further motivation for Inmarsat to move sooner rather than later, while its freedom of action in the low end of the maritime market remains relatively unconstrained by competitive alternatives.
Its been interesting to note that AT&T and Verizon did not file any petitions to deny the AWS-3 license applications of DISH’s two Designated Entities, NorthStar and SNR, despite Verizon and AT&T both having earlier been vocal in denigrating DISH’s bidding strategy in their comments in the FCC’s bidding procedures docket 14-170.
Instead the opposition was left to a couple of small bidders plus a collection of ‘public interest’ organizations, who followed the path set out by Verizon, and alleged violations of antitrust laws by DISH and its DEs. DISH’s response argued that there was no antitrust violation and that the joint bidding arrangements (including realtime coordination of bids during each round, which most people including myself thought was not allowed) were fully disclosed.
While the eventual FCC decision on DISH’s $3.3B discount remains uncertain (and according to FCC Chairman Wheeler would not in any case involve denial of the licenses or reauctioning of the spectrum), it is far from a slam dunk (as some argued originally) that DISH will keep the discount. Nevertheless, it seems to me that Verizon and AT&T could even be better off if DISH kept the DE discount, and that might provide one reason why they held back from challenging DISH’s licenses directly.
Of course DISH would lose $3.3B if the DE discount was rejected, but in that case, DISH would acquire NorthStar and SNR under the terms of its agreements with the DEs, and would be free to consolidate and restructure its AWS-3 and AWS-4 spectrum holdings. After that, in my view, the most likely end game would be to spin-off all of DISH’s spectrum (AWS-3, AWS-4, 700MHz E-block, PCS H-block) into a holding company, which could lease individual licenses to any wireless operator, and raise perhaps $20B-$30B of debt at the spinco level, flowing that cash back up to DISH (and perhaps allowing Ergen to take some chips off the table).
Any repricing of the AWS-3 spectrum would presumably increase Ergen’s asking price for his leases, meaning that Verizon and AT&T might ultimately be the ones to suffer from the removal of the discount. In fact Verizon might even decide it had to pay up and pre-empt the spinoff because of the prospect that this arrangement would make more spectrum available in key markets for both T-Mobile and Sprint.
However, in order to execute these spinoff plans and enter into meaningful leases of AWS-4 spectrum, it is critical that DISH secures interoperability for its AWS-4 downlinks (2180-2200MHz) with the AWS-3 blocks. T-Mobile and Sprint know all too well that building out networks in bands without an ecosystem (such as T-Mobile’s deployment of WCDMA/HSPA in the AWS-1 band, which was ultimately abandoned, and Sprint’s PCS G-block LTE network) makes it much more difficult and expensive to secure handsets (hence there was no WCDMA iPhone operating in AWS-1 and Sprint had to guarantee billions of dollars of purchases to secure a G-block iPhone). As a result, they are unlikely to want to get into bed with DISH and make use of AWS-4 unless and until there is some guarantee of a handset ecosystem.
While DISH can pursue a band class designation for AWS-4 supplementary downlinks through 3GPP, we only need to look at the story of Band Classes 12 and 17 (in the lower 700MHz band) to see that a band class designation on its own, without any regulatory mandate for interoperability, is insufficient to ensure a handset ecosystem is created. And at the end of the day, the FCC was forced to intervene and broker a deal to ensure interoperability in the lower 700MHz band, before T-Mobile moved to buy 700MHz A block licenses for its low band coverage buildout.
Its therefore hardly surprising that AWS-3/4 interoperability was a key request of DISH in March 2014 before the auction, and fiercely opposed by Verizon and AT&T. At the time, the FCC decided not to impose a mandate, but strongly suggested that cooperative efforts should be made to ensure interoperability with AWS-4:
In the absence of technical impediments to interoperability, if the Commission determines that progress on interoperability has stalled in the standards process, future AWS-3 licensees are hereby on notice that the Commission will consider initiating a rulemaking regarding the extension of an interoperability mandate that includes AWS-4 (2180-2200 MHz) at that time. Should we undertake such a rulemaking, relevant considerations may include considerations of harmful interference, technical cost and difficulty of implementation, and the extent to which licensees are common to both the AWS-3 and AWS-4 bands.
Given the likelihood that AT&T and Verizon will engage in delaying tactics (not least due to the relatively short period in which DISH needs to start moving ahead on deployment), DISH will very probably need help from the FCC to push AWS-3/4 interoperability forward. However, if DISH is seen to have gamed the auction rules and secured an unwarranted multi-billion dollar discount, it will be far more difficult for the FCC to help out DISH on interoperability over AT&T and Verizon’s objections.
That might in fact be AT&T and Verizon’s ultimate goal: box DISH in with no possibility of a deal with T-Mobile or Sprint to put its AWS-4 spectrum to use, and wait for Charlie to cry uncle when he runs up against his AWS-4 buildout deadlines. Note that it is pretty much a foregone conclusion that the 4 year interim deadline to cover 40% of the population in each Economic Area by March 2017 will be missed, which will bring forward the final 70% coverage deadline to March 2020 (the timeline was extended to 8 years as part of the H-block deal in December 2013, but one year will be deducted if the interim deadline is not met).
Thus if DISH is unable to reach lease agreements with T-Mobile and/or Sprint for an AWS-4 buildout by the first half of 2017 at the latest (which will require interoperability to be secured in the next 18 months or so), Ergen will be under considerable pressure to moderate his price demands for a sale to Verizon or AT&T. As a result, AT&T and Verizon may win even more if DISH keeps the DE discount, than the $3.3B that DISH loses if the discount is rejected.
In the wake of Globalstar’s TLPS demonstration at the FCC in March, it seems that the company has gone all in to push for an order approving TLPS in line with the rules proposed in the November 2013 NPRM. Indeed, Globalstar now seems to be losing patience, telling the FCC last month that “it is time for the Commission to move forward with an order in this proceeding” and that “it would also be bad policy and bad precedent for the Commission to require additional test data for every potential deployment scenario that would be possible under the Commission’s proposed TLPS rules.” Globalstar has also taken the decision to ignore short sellers, such as Gerst Capital, who raised additional questions about potential interference with Bluetooth.
In contrast, it seems Iridium is trying to appear as more reasonable by scaling down its L-band spectrum proposal to only involve sharing of the band, while WiFi and Bluetooth interests are requesting more testing and hinting at a possible compromise where the operating parameters of TLPS are further restricted (though it is clear that both would like to delay any order on TLPS indefinitely).
Now that LTE-U/LAA has emerged as a major concern for users of unlicensed spectrum (and an issue for the FCC), due to the potential to crowd out existing applications, the freedom that the existing NPRM proposal would grant Globalstar to shift to a supplementary LTE downlink configuration (if that ultimately provided the best opportunity for monetization) brings additional complications to the FCC’s decision. And Google has also weighed in, presumably because it sees TLPS as a potential rival ecosystem to its work to open up additional small cell spectrum in the 3.5GHz band.
The FCC has not yet given much of an indication about how it will act, although it is notable that NPRMs which confer a substantial benefit on a private company often involve additional compromises to benefit the public interest (as happened with DISH’s AWS-4 order, which, over DISH’s vigorous objections, changed the uplink OOBE limits to ensure the PCS H-block could be auctioned). However, in late April an unnamed FCC official told Bloomberg that “The Commission will consider the results [of the demonstration] in determining what next steps may be appropriate in the pending rulemaking.” The mention of next steps in the plural is particularly intriguing, since issuing an Order to conclude the rulemaking at this point would only require a single step.
Globalstar continues to maintain in investor presentations that “process completion/TLPS authority” is “expected shortly”. That appears to assume that the FCC rejects the demands for more testing of TLPS and simply moves forward with the NPRM as written, since we have not yet seen any evidence of potential compromises (such as for example a response to Iridium’s latest proposal). As I noted at the beginning of this post, this looks to be a high risk approach: if Globalstar doesn’t get what it is asking for, and doesn’t proactively offer to move forward with additional testing and/or other compromises, then any resolution of this matter is going to be delayed for many months, possibly even beyond the end of 2015.
At last week’s Satellite 2015 conference, considerable attention was focused on new LEO constellations, most prominently OneWeb, whose founder Greg Wyler made a keynote speech to introduce the system and a couple of mockup terminals. Although many doubts exist about the feasibility of the OneWeb system (particularly with regard to the very ambitious cost estimates and the plausibility of building a profitable global Internet access business), its clear that OneWeb is moving aggressively to try and secure funding and sign a contract for satellite construction with one of five bidders in the next month.
Much less was said at the conference about SpaceX’s proposed 4000 satellite constellation, which Elon Musk announced in January with a half-baked speech in Seattle, which included many off-the-wall and some completely incorrect statements (such as that Teledesic “were trying to talk to phones”). Back in January, Google’s investment of $900M in SpaceX was seen as initiating a partnership to launch this new satellite system. However, at Satellite 2015, SpaceX made clear that the satellite venture was in the “very early stages” and Google’s investment was “not for the global internet project we’re exploring right now.”
A logical conclusion to draw, given Musk’s usually impeccable technical depth and the later change in description of Google’s investment, is that the announcement of the SpaceX constellation was rushed out in order to overshadow Wyler’s announcement of the much more modest investment he had secured from Qualcomm and Virgin.
However, what SpaceX has already done (on March 2) is make a filing at the FCC, which “support[ed] the extension of proposed changes to the Commission’s ITU coordination procedures to NGSO systems to encourage such filings through the U.S. administration”. SpaceX noted that there were “incentives for foreign administrations to pursue NGSO broadband satellite filing strategies that effectively block access to available spectrum and orbital resources” in contrast to the FCC’s “modified processing round” approach.
SpaceX proposed that licensees also be required to launch and operate a percentage of the authorized number of satellites (such as 5%) within 3.5 years and then 75% of the authorized satellites within 6 years, rather than the current milestones of 1 satellites then the entire constellation. In addition, it was proposed that the initial milestones for contracting for, and beginning construction of, the satellite constellation should each be shortened by 6 months.
All of these proposals are clearly intended to make OneWeb’s life more difficult. However, the more important subtext of SpaceX’s submission is that it would clearly like to be subject to the FCC rules, which mandate a sharing of both Ku-band and Ka-band NGSO spectrum between all entrants, regardless of ITU filing priority, based on avoidance of inline interference events.
Under these rules, the spectrum is split in half when two satellites from different systems are inline with one another and would therefore interfere with terminals at a particular location on the ground, and the first system to launch simply gets to indicate which (fixed) half of the spectrum it will use during these inline events. Given the large number of satellites that SpaceX and OneWeb both propose to launch, this splitting of the spectrum would happen almost all the time, and therefore for all intents and purposes, OneWeb would lose access to half of the Ku-band NGSO spectrum once both systems were operational.
Some have argued that OneWeb could simply rely on its ITU priority and not seek a license from the FCC. However, its hard to imagine that ignoring the US market is practical, given that the vast majority of the world’s satellite broadband subscribers today are in North America, and OneWeb has expressed its ambitions to provide inflight connectivity services, when most equipped aircraft are also based in North America. Moreover, if as many suspect, one of Qualcomm’s reasons for investing in OneWeb is to gain access to spectrum that could eventually be authorized for terrestrial 5G use (just like the ATC applications by LightSquared, Globalstar and others for 4G in the L-band and S-band), it is hard to imagine trying to pursue such an approach through any administration other than the FCC.
While it might be more difficult for the FCC to enforce its mandated allocation on systems licensed through other administrations when they are operating outside the US (notably Globalstar licensed its second generation constellation through France for precisely this reasons, after the FCC reallocated some L-band spectrum to Iridium), mutually assured destruction could potentially result if a US-licensed system decided to transmit in half of the spectrum in accordance with US rules, wherever its satellites were operating around the globe. (Note that, in contrast, Iridium and Globalstar have reportedly not noticed any interference from the two systems operating at relatively low levels of loading in the portion of the L-band spectrum that the two operators share.)
With OneWeb looking to close an investment round of between $300M and $500M in April, and start manufacturing satellites, it would therefore not be in the least surprising if SpaceX decides to ask the FCC to initiate an NGSO processing round in the very near future (perhaps in both the Ku-band and Ka-band) as a way of impairing OneWeb’s ability to move forward, and perhaps even preventing the investment round from closing. Musk certainly seems to have decided that he wants to destroy Wyler’s project (perhaps because he doesn’t like any potential imitator as a publicity-seeking space entrepreneur), and it is notable that the Steam filings, through Norway, which are generally believed to be controlled by SpaceX, were received at the ITU on June 27, 2014, when Wyler and Musk were still in discussions about potential collaboration.
The effects of an FCC processing round would be to delay any regulatory certainty about NGSO spectrum allocations for at least a year and possibly much more, while the FCC decided whether to confirm its existing rules for spectrum sharing, and it became clear whether this approach would be adopted elsewhere. There could also be some notable knock-on effects from any Ka-band processing round on O3b, whose FCC authorization specifically states that O3b’s use of the NGSO Ka-band spectrum is “subject to the sharing method specified in Establishment of Policies and Service Rules for the Non-Geostationary Satellite Orbit, Fixed Satellite Service in the Ka-band, Report and Order, IB Docket 02-19, 18 FCC Rcd 14708 (2003) and 47 C.F.R.§ 25.261.”
Thus the FCC has mandated that O3b must share its existing NGSO Ka-band spectrum with future systems, and the launch of a new large NGSO Ka-band system (which might include SpaceX’s constellation, if it operates in both Ku- and Ka-band) could have a meaningful effect on O3b’s operations in the future, whether O3b complies with the FCC ruling or withdraws from operating in the US in (what might end up being) a futile attempt to evade these constraints.
Despite it coming as a “surprise” to many reporters (and Wall St analysts) that DISH ended up with more total winning bids (before DE discounts) than Verizon in the AWS-3 spectrum auction, and that DISH got a 25% DE discount on its bids, the outcome is exactly what I predicted from the bidding patterns back in November. I was particularly amused to look back at Jonathan Chaplin’s comment from his December 7 report which poured scorn on my thesis, stating:
Some have suggested that DISH is distorting prices by bidding against themselves (DISH has three bidding entities that can’t communicate with each other during the auction). While possible, this is highly, highly unlikely.
[As a reader suggests, perhaps I should take this opportunity to note Chaplin's follow-up proposal on January 11 that DISH should do a LightSquared and set up a wholesale capacity business generating $10B per year. While possible, this is highly, highly unlikely.]
Its useful to examine exactly why DISH was so successful in driving up the price of the AWS-3 paired spectrum to a price far beyond anyone’s expectations. One of the key objectives for a bidder in the early rounds of an auction is to discover the amount of spectrum that its rivals are looking to acquire (only later does it become possible to discover how much they are prepared to pay for that spectrum). The price usually rises fastest in the key cities and then as the mix of demand becomes clear, bidders can switch over to second tier licenses knowing roughly how much spectrum they will end up being able to win.
We know that AT&T was looking to buy a paired 10MHz block, and it seems likely that Verizon would have been seeking roughly the same. Meanwhile T-Mobile wanted to selectively pick up one or two paired 5MHz blocks. If DISH hadn’t been bidding then everyone could have got what they wanted at close to the reserve price. However, adding DISH to the mix meant that the four key players were trying to buy more than the 2x25MHz of paired spectrum that was available.
More importantly, DISH was bidding through three separate entities and instructed them to bid on all the licenses simultaneously in key cities, to ensure that AT&T, Verizon and T-Mobile simply didn’t know how much spectrum each other and DISH were looking to buy.
The chart below shows the bidding patterns for the G, H, I and J blocks in New York (the G block is a smaller 2x5MHz CMA license, while the H and I blocks are 2x5MHz BEA licenses and the J block is a 2x10MHz BEA license).
We can see that all three DISH entities bid on every one of the New York paired license blocks they weren’t already holding all the way through Round 15, by which time the total combined gross price had reached $2.81B ($2.28/MHzPOP). In fact, it wasn’t until Round 18 (when the price reached $3.81B or $3.12/MHzPOP) that DISH’s bidding on these licenses began to slow (and SNR even overbid its own winning bid in Round 17).
[Incidentally, DISH's 3 entities combined were the biggest bidder for much of the auction, notably as late as Round 63, where they held $14.7B of gross PWBs or 35% of the $41.6B total, compared to $12.6B for AT&T, $10.5B for Verizon and $2.1B for T-Mobile. When the reserve price was met in Round 13, DISH held a total of $5.4B of PWBs, 44% of the $12.3B auction total at that point in time, compared to only $2.7B for AT&T, $2.1B for Verizon and $1.3B for T-Mobile.]
DISH clearly wrote the instructions to its DEs very well, because in the end there were very few cases where the final winning bid from SNR was topping an existing bid from NorthStar or vice versa (the largest license I’ve seen where this happened is the B1 unpaired license in Tampa BEA034 which sold for $21.4M before the DE discount). And it does seem that DISH complied with the letter of the rules: even though the FCC still needs to rule on whether the DE discount should be granted, it seems unlikely the FCC would want the auction to descend into chaos (which could theoretically result in a re-run).
However, its clear that the rules for future auctions will need to be rewritten significantly – I would expect severe restrictions on DE discounts and common ownership of different bidding entities at the very least. Indeed, it will now be very difficult to come up with a workable structure to advantage smaller operators like Sprint and T-Mobile in the incentive auction next year.
Where does the outcome leave us? Ergen did not buy a readily deployable collection of spectrum, instead seeking a blocking position in key cities (including New York and Chicago) in an attempt to force other operators to make a deal with him. Interestingly, most of DISH’s paired AWS-3 spectrum is in the G block, which is adjacent to and perhaps more quickly usable with the AWS-1 spectrum band, rather than being aggregated directly with the adjacent AWS-4 downlinks in the longer term like the J block. DISH also acquired most of the unpaired uplink blocks, which appears to be a hedge against the potential (and now perhaps likely) loss of LightSquared.
However, with AT&T winning enough AWS-3 to meet its spectrum needs (and make it highly indebted) for the next few years (not to mention AT&T’s ownership of DirecTV which makes a tie-up with DISH very difficult), it seems clear that Ergen is setting his sights squarely on a deal to sell DISH (or perhaps more likely lease its spectrum, given the difficulty of reaching agreement on a sale price) to Verizon.
So now, as I pointed out in November, the key question is whether Sprint will take this opportunity to satisfy Verizon’s spectrum needs through a sale of 2.5GHz spectrum? Given everyone in the industry is fed up with Charlie, that certainly seems like a plausible next step.
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