Is it really still ancillary terrestrial component (ATC), or should we call it ancillary satellite component? With the U.S. Federal Communications’ Commission’s grant of a waiver in January to MSS operator LightSquared (the former SkyTerra and Mobile Satellite Ventures) to permit terrestrial-only service, followed by a parallel application by competitor Globalstar, the climb-down by the FCC from the premise on which ATC licenses originally were granted appears complete. At the same time, bankruptcies and changes in strategic direction by MSS investors are again reshaping the landscape for mobile service.

The ATC license originally granted to LightSquared would not have permitted terrestrial-only service or handsets, and in fact, even that license was granted despite the objections of terrestrial wireless operators that the spectrum licensed would have brought far more at auction had it been offered for terrestrial service instead of satellite service. The ATC plan contemplated a terrestrial component as a way to update the business plans that led to the MSS bankruptcies of Iridium, Globalstar and ICO about 10 years ago. The belief was that either through a network of terrestrial repeater technology related to that used by digital audio radio satellite service or an alliance with a major terrestrial telecommunications operator (more likely, an acquisition by a telecom), the problem for satellite telecommunications of competition from near-universal, terrestrial wireless service and penetration, on a scale not envisioned when the original MSS constellations were launched, could be solved.

Under the waiver, LightSquared will have to prove to the FCC that the ancillary terrestrial components themselves — LightSquared’s planned network of about 40,000 terrestrial base stations — will not interfere with other satellite operations, including that of the global positioning system navigation constellation, and will not be allowed to sell terrestrial-only handsets for substantially less than the dual mode handsets it is developing. However, given the chipset and antenna differences between a dual mode handset and a terrestrial-only one, LightSquared will either have to offer the dual mode handset at a subsidized price or the price condition will be explicitly or tacitly abandoned by the FCC going forward. Considering the extent to which the FCC has abandoned the original ATC premise, ultimate tacit and then explicit abandonment sounds likely.

The FCC climb-down on ATC service comes as the MSS sector undergoes significant changes. Harbinger Capital Partners, the hedge fund that in recent years had amassed a portfolio of MSS operators, including LightSquared, which it had positioned as an acquisition vehicle for operator Inmarsat, announced in February that it would sell its Inmarsat stake. At the same time, and in the wake of the waiver grant, LightSquared made an initial cash payment to Inmarsat under a Harbinger-sponsored arrangement by which LightSquared will pay Inmarsat an escalating amount calculated on a base $115 million per year for use of Inmarsat’s North American L-band spectrum.

Harbinger and direct broadcast satellite operator Echostar had a tentative parallel play in mind for MSS operators in the S-band. Echostar, which provided post-petition financing to bankrupt operator DBSD North America, the former ICO North America, also provided $75 million in emergency funding to DBSD competitor Terrestar, another Harbinger portfolio company that filed in October for bankruptcy protection. At the time of the investment, it was seen as leading to a potential acquisition by Echostar of Terrestar, leading to an S-band merger with DBSD. However, in February, Echostar announced that it would not pursue the acquisition and would instead acquire broadband provider Hughes Network Systems, entering instead into competition with ViaSat, which previously acquired broadband startup WildBlue.

Whether anyone else will pursue S-band consolidation is unknown, as is the prospect of other consolidation in L-band or on a service basis, like ATC. In the meantime, Inmarsat is pursuing a controversial Ka-band plan, and Iridium and Globalstar, less dependent on the ATC model, continue to focus on deployment of their second-generation constellations. The medieval arms of the city of Paris show a ship in rough seas with the motto, “Fluctuat nec Mergitur,” which translates to “she is tossed by the waves but does not sink.” The motto also applies to the MSS sector.

Owen D. Kurtin is a founder and principal of private investment firm The Vinland Group LLC and a practising attorney in New York City. He may be reached by e-mail at [email protected].