WASHINGTON-The unsuccessful proxy fight lodged by Highland Capital Management L.P. against Motient Corp. has given way to another nasty skirmish over proposed ownership changes in mobile satellite assets whose value may have been a factor in the exit of a high-rolling satellite TV bidding team in the advanced wireless services auction and whose future communications capabilities have attracted the attention of national law enforcement and homeland-security officials.
Mobile satellite service spectrum has suddenly become somewhat of an X factor in a telecom sector where fierce competition for consumer dollars has top companies building business models based on a quadruple-play package of phone, wireless, TV and broadband offerings. Not so long ago, the MSS industry was on life support, with the high-cost of service and bulky handsets attractive to the military and other niche users, but otherwise a huge turn-off to the mass market largely served by the four national mobile-phone carriers.
However, the value of MSS-representing an alternative telecom infrastructure less vulnerable to compromise from man-made and natural forces-rose in the aftermath of the Sept. 11, 2001, attacks and deadly hurricanes that devastated Gulf states last year. Likewise, the value of MSS spectrum has been dramatically enhanced by the Federal Communications Commission’s decision to allow its use on land for supplemental cellular network operations. The availability of having the flexibility of an ancillary terrestrial component, or ATC, is golden-if not a lifeline-for MSS operators and the sector in general.
Add to all that a growing demand for the nation’s dwindling supply of the airwaves and you have a Star Wars-like battle over MSS frequencies, many yet to have been put into operational mode.
MSS spectrum has gone from being sad to sexy. That and other factors are at play in a complex web of MSS ownership stakes embedded in license-transfer applications facing federal regulators.
Motient in May announced a series of transactions whereby SkyTerra Communications Inc. would own 70 percent of Mobile Satellite Ventures L.P., an MSS licensee with FCC approval to combine L-band (1.5 GHz) satellite operations with land-based cellular networks. MSV is privately held and its primary investors include Motient, SkyTerra, TMI Communications and Columbia Capital.
Under the MSS ownership realignment plan, Motient would increase to 74 percent its stake in TerreStar Networks Inc., an S-band (2 GHz) MSS licensee also planning to construct and operate a hybrid satellite-terrestrial communications system capable of providing services to small wireless phones.
Motient currently owns a 49-percent stake in MSV and a 61-percent stake in TerreStar. Motient recently sold its legacy terrestrial wireless business to Logo Acquisition Corp.
The Justice Department, FBI and Department of Homeland Security asked the FCC to adopt eavesdropping-related conditions to any approval of MSS license-transfer applications.
Highland, a Dallas-based hedge fund, owns 14 percent of Motient. Highland President James Dondero, who has accused Motient of gross mismanagement and various improprieties, had been engaged in a long-running proxy fight to get a new, larger slate of directors elected to the company’s board. But his gambit failed. Highland and Motient have sued each other in various courts, with mixed-though albeit largely insignificant-consequences to date.
In FCC filings, Motient made a point of highlighting that Dondero in mid-July acquired 12.5 million shares of ICO Global Communications Holdings Ltd., giving him a nearly 9-percent stake in the MSS company created by cellular pioneer Craig McCaw.
“As the commission is aware, ICO is the holder of 2 GHz mobile satellite authorization. Mr. Dondero’s ownership of ICO shares, which Highland did not disclose in comments, may well give Highland an interest in complicating the business plans of MSV and TerreStar,” Motient told the FCC.
Highland said Motient’s characterization of Highland’s purchase of ICO shares were “deliberately misleading and factually wrong.” Highland said it has been an ICO investor for more than seven years, or about as long as it has been an investor in Motient. Highland said the Motient/MSV/SkyTerra deal raises significant public-interest issues, and urged the FCC to await the outcome of its lawsuit against Motient before acting on applications to transfer MSS licenses.
Back-and-forth allegations and counter lawsuits aside, the Highland-Motient feud boils down to control of valuable spectrum.
Indeed, analysts strongly suggested the abrupt departure from the AWS auction by EchoStar Communications Corp. and DirecTV Group Inc., the two dominant satellite TV operators that joined forces to bid and that jointly placed the largest upfront payment for Auction 66, was prompted by a view that their money might be better spent purchasing or partnering with Motient or SkyTerra or even McCaw’s wireless broadband company, Clearwire Corp. Indeed, with the AWS auction appearing to move into its final stage, serious wireless gaming has returned to corporate suites.
“It was likely clear early on in the auction that they were not going to be able to outbid Verizon (Wireless) and T-Mobile (USA Inc.). By continuing to bid higher, DirecTV and EchoStar risked giving the holders of alternative sources of spectrum such as the MSS/ATC companies a better sense of what they would be willing to pay-not the best negotiating tactic,” said Darren Myers, a research analyst at Tejas Securities Group.
Myers said the AWS auction could aid MSS players.
“AWS spectrum values should improve the leverage the MSS/ATC companies have in their negotiations with strategic partners. On a $/MHz/pop basis, MSS/ATC spectrum is currently being valued at just half the value of the AWS spectrum and about a third of the value of the 20-megahertz AWS licenses covering the continental U.S.,” said Myers. “As demonstrated by the auction results, MSS/ATC spectrum remains the only viable option for companies seeking a nationwide block of contiguous spectrum for next-generation networks.”
Tejas Securities has performed investment banking and consulting services for Motient and SkyTerra. Myers said he owns shares of Motient and ICO and, as an analyst in the MSS space, currently has “buy” recommendations on Motient, SkyTerra, ICO and Inmarsat.
“Spectrum will become an increasingly scarce resource as wireless broadband use proliferates, potentially increasing the value of large blocks of nationwide spectrum such as those held by the MSS/ATC companies,” said Meyers. “MSS/ATC spectrum provides a new entrant or an existing wireless carrier the ability to offer consumers nationwide the first truly ubiquitous high-speed network. The hybrid connectivity offered by MSS/ATC should be considered a unique opportunity to differentiate from other networks in an increasingly competitive business.”
Another player in the mix, Globalstar Inc., a fully operational global MSS operator, is seeking FCC permission to use more of its spectrum for terrestrial cellular operations. Globalstar presently is allowed to use 11 megahertz, or the remaining amount of its 27.85 megahertz spectrum holdings, for its ancillary terrestrial component.
Wireless industry trade association CTIA claims Globalstar’s request, if granted, could cause unprecedented interference problems in the upper 2.4 GHz band. That frequency band was designated as the home for fixed wireless licensees being relocated from the 2.1 GHz band to make room for new AWS licensees.
