Ever since the FCC opened the door to the use of satellite spectrum for terrestrial networks, it has seemed like a case of the tail waging the dog. It is nearly impossible to construct a scenario in which a major portion of the users of an ATC (ancillary terrestrial component) network would actually use the satellite portion of the system. As such, the obvious question is: “Why have satellites at all?”

One answer is that the even if most routine wireless users do not use satellite service, the network as a whole supported an emergency/disaster communications network that would function when wholly terrestrial networks went down. This makes sense from a regulatory standpoint. It allows the FCC to make double use of the MSS-ATC spectrum block. The use of TV broadcast white space for non-broadcast video is another example of this FCC drive to increase the efficiency of scarce frequency resources.

It technological terms, the ATC decision follows the trend towards smart radios that are able to share the same spectrum for different applications without creating (we are told) interference. If this trend continues, one can imagine a regulatory regime aimed more at devices (to ensure that they do not interfere with each other) than at the separation of application by frequency.

Another consideration that came up in a discussion of Hughes’ ATC efforts was that a satellite overlay allows larger quantities of data to be available to wireless users. ICO’s plans to provide video to mobile users through a series of terrestrial repeaters is an example of one way this might function.

When the relatively small portion of mobile users who need absolutely guaranteed connectivity are added, this pretty much covers the traditional satellite strengths — universal coverage and the ability to multicast. I have never thought that these alone were a sufficiently compelling offering to justify the development of a full-blown ATC system. Such a system might well be modestly profitable, but it is not clear that it would be the best place to put your money to archive a high level of return.

Cynics always have felt that the real value of ATC was that it let undercapitalized satellite companies monetize their greatest asset — spectrum rights. Globalstar clearly has done this in its deal with OpenRange, in which OpenRange will use Globalstar’s spectrum for a terrestrial network. Interestingly, in this scenario, the network company will have no satellites at all. In a case like this it is not entirely clear what investing in ATC means. Investing in who? The terrestrial network company? The satellite company that is leasing out its spectrum? Both? Neither?

This leads to my answer to the question of investing in ATC. There is no such animal. If you listen to TerraStar, for example, its goal is to create a vibrant mobile telecom ecosystem enabled by their spectrum and, to a lesser degree, its hardware and intellectual property. How this vision is received at Harbinger is not certain, but Harbinger is clearly trying to create a broad terrestrial network with TerraStar as a foundation. The point is that the investment opportunity is largely the terrestrial network, not the satellite overlay.

Rather than asking if ATC is a good investment, the question should be whether a satellite spectrum-based terrestrial network is a good investment. Buildout costs for Harbinger’s LTE network have been estimated in the $4 billion range. TerraStar owes Space Systems/Loral hundreds of millions of dollars for the two satellites that provide legal access to much of the spectrum to be used in this $4 billion network. Instead of buying spectrum in an auction, TerraStar, and hence Harbinger, purchased satellites.

While TerraStar’s satellites do provide unique capabilities, the factor investors should be looking at is in the FCC’s June announcement that it wanted to enable the flexible use of the MSS-ATC spectrum. That is building terrestrial wireless networks in satellite frequencies while maintaining satellite-based services for public safety, rural and federal government use. In addition, the FCC proposed opening up 90 megahertz of MSS spectrum for ATC use as part of its National Broadband Plan. In other words, the FCC wants ATC networks to succeed for all of the traditional reasons. For an investor, however, the real message is that the FCC won’t grab the MSS spectrum to reallocate to other users and that if the terrestrial portion of the network can rival current terrestrial networks, it could be a real moneymaker.

Max Engel is an experienced satellite and telecom industry analyst and founder of The North Star Consultancy. He can be reached at maxengel@thenorthstar consultancy.com.