LightSquared's and Dish Network's proposals to use satellite spectrum for 4G networks aren't necessarily competing for FCC approval, but either one could make the U.S. mobile broadband business more competitive if it clears significant hurdles.
While LightSquared lobbied for its network against fears of interference to GPS (Global Positioning System), Dish last month came up with a plan that is similar in some ways, though without the interference problems. Both face significant build-out costs and a cloudy profit outlook.
Both companies want permission to use the MSS (Mobile Satellite Services) band for land-based mobile data networks without being required to offer a hybrid service, with specialized devices, to all customers. For this, they need waivers from the U.S. Federal Communications Commission, which originally set aside the MSS band for satellite services that would not use terrestrial networks except to get around the blocking of satellite signals by buildings in urban environments.
The waivers could help the FCC meet its goal of providing more radio spectrum for mobile broadband and making more high-speed Internet access available to residents of rural areas. The new LTE (Long-Term Evolution) entrants would also serve its goal of increasing competition in the mobile market.
Making satellite viable
With expensive handsets and service plans and relatively slow connections, satellite hasn't proved broadly popular as a consumer mobile technology. LightSquared and Dish both want to transform satellite companies into cellular operators while keeping satellite available as a separate or bundled service. LightSquared plans to only provide its services at wholesale to other carriers, while Dish is interested in selling its own consumer services.
The companies come at the proposition from dramatically different places. LightSquared was formed last year by Harbinger Capital Partners, which acquired satellite phone provider SkyTerra without any former telecommunications experience. Dish Network is a satellite TV provider founded in 1996 that also resells voice and data services and claims 14 million customers nationwide. It gained access to the 2GHz spectrum by acquiring the bankrupt satellite companies TerreStar and DBSD at auction earlier this year.
Dish plans to take advantage of its national sales, support and maintenance infrastructure to deliver its mobile service, and the 4G network it proposes is likely to become part of its broader set of offerings. Dish also plans to use a faster and more advanced technology than LightSquared's, called LTE Advanced, and it wouldn't have its network up and running until later. LightSquared plans to offer services next year, while LTE Advanced is not expected to be available until 2013.
Meanwhile, the frequencies Dish wants to operate on aren't used by GPS, so it avoids the interference issue. This has led some to predict that its plan could be a shoo-in at the FCC, possibly leading the agency to turn down LightSquared's controversial proposal and embrace Dish instead.
"The FCC would dearly love to have some kind of a business plan to show that things are happening with regard to wireless broadband," said Sanford Bernstein analyst Craig Moffett. "The emergence of Dish Network as an alternative takes some of the pressure off the commission to push through approval of the LightSquared plan."
However, others said the FCC is likely to judge each plan on its own merits. Dish's entry could even help LightSquared, said Tolaga Research analyst Phil Marshall.
"If anything, the fact that Dish is lobbying to do the same thing ... would bolster the whole notion," Marshall said.
Plans are different
However, Dish's proposal can't be judged simply as LightSquared without the GPS controversy, said Maury Mechanick, an attorney at White & Case and a former executive of satellite provider Comsat.
In applying for its FCC waiver, LightSquared made more explicit commitments for its network buildout than Dish has, Mechanick said. LightSquared has promised to make its 4G network reach 100 million U.S. residents by the end of 2012, 145 million in 2013, and at least 260 million by the end of 2015. Dish's application said only that the company is prepared to work with the FCC to develop a roll-out schedule.
Also, Dish so far seems to be seeking a broader waiver than LightSquared wanted, Mechanick said. LightSquared specified it wants to sell both LTE and satellite services at wholesale, charging the same for both, and let its customers choose to sell one or both, he said. Dish has been less specific about how it wants to treat the two different networks, Mechanick said.
In addition, the FCC has said it wanted to auction off spectrum in the 2GHz band, and Dish's rivals may ask the FCC to stop the company from making its satellite frequencies into more valuable cellular spectrum simply by getting it reclassified, analysts said. They may ask the FCC to put the spectrum back on the market in an auction and make Dish pay for it, Moffett of Sanford Bernstein said. However, untangling the legal and political complexities of that process might defeat the purpose of making the spectrum available, he said. "It would effectively put this spectrum on ice for years," Moffett said.
The FCC's push to open up more capacity for mobile broadband also works in LightSquared's favor, according to Mechanick. Even faced with the GPS interference problems, the FCC probably wants to avoid rejecting LightSquared's proposal outright, Mechanick said. That would involve essentially keeping 20MHz of frequencies off-limits to any applications other than satellite, at a time when it is trying to open up many times that amount to wireless data, he said. That's likely to motivate the FCC to find a solution.
"Spectrum is king right now," Mechanick said.
Hard road to profit
Once one or both of the companies get approval to go forward, there is still the problem of making money from a very expensive investment. Some analysts question LightSquared's wholesale plan because U.S. mobile operators historically have preferred to build their own networks and use them for competitive edge. Sprint Nextel, which earlier this year agreed to a 15-year, $9 billion plan to host LightSquared's service on its own next-generation network, has shared its infrastructure with many carriers but is a notable exception to the rule.
Moreover, mobile data itself is not yet proven as a business proposition, according to Moffett. Even as data makes up a growing share of their revenue, the major U.S. carriers are still effectively subsidizing their data plans with highly profitable services they have been selling for years, he said.
"Return on invested capital in the U.S. wireless business is barely above the cost of capital even for the players that have thriving voice and text businesses," Moffett said. Without being able to sell minutes and messages, Dish and LightSquared could only bring in about one-third of the monthly rates that the current carriers get, he said.
For enterprises buying mobile data services, the prospective new players may represent more risk than reward unless they fill a specific need such as satellite coverage in very remote areas, said Marshall of Tolaga Research. At least in the first few years, the established mobile players are likely to be more stable and offer services on a wider range of devices, he said.
"I'd be cautious in adopting anything that's too exotic in nature," Marshall said. "You need to be getting some kind of value proposition over and above the other guys."