SkyTerra Order Picks Spectrum Winners, Losers, AT&T and Verizon Say

The order comes at an especially sensitive time, right after the release of the National Broadband Plan, with questions coming up last week at the CTIA conference on whether the FCC should impose similar stipulations on the 700 MHz D-block or other future auctions. An FCC official said it wasn’t clear who on the staff had primary responsibility for the transaction or who was pushing the condition and whether how the transaction was handled sets a precedent for future deals awaiting FCC sign off. The transaction was approved on the basis of a confidential filing that was not publicly available.

Commission Republicans Robert McDowell and Meredith Baker had sought without success last week to have the condition stripped from the order, FCC officials said Monday. AT&T executives were especially troubled that the stipulation was imposed without notice and was unrelated to the transaction before the commission, officials said.

"In its approval of the Harbinger/SkyTerra Communications transaction the Commission is setting a very disturbing precedent when it implies that it may use allocation of spectrum to manipulate the wireless market,” said Jim Cicconi, AT&T senior executive vice president. “Having highlighted the very real problems caused by the spectrum crunch in its National Broadband Plan, the FCC now suggests that it will decide which companies are allowed to address that crunch and which are not. This amounts to the FCC using its powers to pick winners and losers in the wireless market rather than allowing consumers themselves to do that. This sort of targeted favoritism by the government has no place in free markets. Nor are we aware that Congress has vested the FCC with any authority to implement industrial policy of this nature. In short, this action is manifestly unwise and potentially unlawful."

"Both the bureau’s process and the resulting restrictions are troubling,” said Verizon spokesman David Fish. “We are reviewing our options."

An FCC source cautioned against reading too much into the order and noted that it does not specifically mention AT&T or Verizon Wireless, restricting a spectrum lease by the nation’s “largest or second largest wireless provider."

"Although the specifics of their business model are obviously highly confidential due to their competitive sensitivity, we were gratified that Harbinger volunteered commitments that were both consistent with their plans and assured the FCC that the promised public interest benefits of the transaction would indeed materialize,” said Paul De Sa, chief of the Office of Strategic Planning and Policy Analysis, in a blog entry. “These commitments -- building out the network to 260 million Americans by 2015 and allowing the FCC prior review of potential leases of spectrum or capacity to the two largest incumbent carriers -- do not prohibit any specific transactions. But they do provide some reassurance that the approval will ignite new broadband competition while protecting the public from any potential harms.” The restrictions are “specific to this transaction involving mobile satellite service spectrum and do not affect any of our other spectrum policies,” he said.

"This is a pretty shocking action, not only for what it reveals about the staff’s willingness to act on an important matter without public comment and full commission approval, but more fundamentally about the FCC’s mistaken view that it can micro-manage market transactions,” said President Randolph May of the Free State Foundation. “The commission ought to be acting to allow flexible use of spectrum, not encumbering it."

Harbinger completed its purchase of SkyTerra on Monday, after the FCC said late Friday that it would allow the acquisition. Harbinger previously owned about 48 percent of SkyTerra’s voting shares. That almost guaranteed shareholder approval, which was granted last week.

The FCC order clears the way for Harbinger to begin a terrestrial wireless service that would be the first large-scale effort to deploy terrestrial services using the mobile satellite services (MSS)/ancillary terrestrial component (ATC) spectrum. The order found the deal to “be unlikely to have anticompetitive effects on current mobile satellite services” and any future competitive harm to “be limited to a narrow field.” Still, the FCC is requiring Harbinger to build out its network to at least 100 million people before 2012, 145 million before 2014 and 260 million before 2016. Harbinger’s business plan, which it described in a filing with the commission Friday, involves the use 23 MHz of terrestrial and MSS/ATC L-band spectrum at first. The company will have access to an additional 30 MHz of ATC spectrum through a cooperation agreement with Inmarsat. The network will consist of SkyTerra’s satellites, 36,000 terrestrial base stations, multifrequency handsets, a terrestrial cell site and backhaul network, operations centers and other terrestrial carriers’ networks through roaming agreements, Harbinger said.

The company said it’s discussing with other licensees “pooling” spectrum so it “would be incorporated into the infrastructure of the terrestrial wireless network” to “enhance the broadband capacity.” Harbinger also owns 29 percent of Inmarsat’s shares and 44 percent of TerreStar. Those companies declined to comment on the deal.

Observers said FCC approval flows logically from its National Broadband Plan, which includes a recommendation that the commission push for increased development of terrestrial networks by MSS/ATC spectrum holders. “The is a natural outgrowth of what the commission was hoping,” said an industry executive. The order will have a “big public policy benefit” and “helps us prove the point that this space is competitive.”

Further FCC action on MSS spectrum will have even larger implications with Harbinger funding a terrestrial network, said Tim Farrar of Telecom, Media & Finance Associates. The commission has said it plans to introduce more flexibility in gating requirements for MSS/ATC licensees. Relaxed rules on dual-mode devices in particular could let Harbinger become a terrestrial provider with satellite connectivity offered to public safety agencies and at the highest tier of service, he said. Farrar estimated the network will require $4 billion in capital spending.

"Approving the transfer of control brings Harbinger’s resources and demonstrated operational commitment to our ATC vision,” said SkyTerra CEO Alexander Good. The company declined to comment further. The “FCC’s broadband policies have given us the confidence to make a series of investments that will bring new competition and innovation to all Americans,” Harbinger CEO Phillip Falcone said.