Closely Watched TerreStar Auction Pushed Back

TerreStar representatives, “consistent with their fiduciary duties to maximize value for their estates, are currently in active discussions with various interested parties regarding potential bids, including, without limitation, potential stalking horse bids,” the filing said.

It’s unclear who TerreStar is in discussions with and the company declined to comment, though there are several names that have been consistently raised as possible suitors. Dish Network and EchoStar has long been viewed as the most likely to end up with TerreStar’s assets (CD April 15 p3), given EchoStar’s existing stake in TerreStar and Dish’s efforts to buy DBSD, which has 20 MHz of S-band spectrum next to TerreStar’s 20 MHz of spectrum. Harbinger Capital Partners has also been discussed as a potential suitor. Harbinger, which owns LightSquared, also has some ownership in TerreStar and previously showed interest, bidding to buy both TerreStar and DBSD out of bankruptcy. A Harbinger takeover of TerreStar might please the GPS industry, which would like to see LightSquared move its terrestrial broadband service out of the L-band.

What happens in the TerreStar bankruptcy process is expected by many to have a big impact on how, and if, the FCC moves forward on efforts to increase terrestrial broadband in the spectrum, satellite executives said. “There are a number of paths available -- incentive auctions, combining the licenses to build a new broadband network with or without satellite service, flipping the spectrum to an existing operator to augment its spectrum holdings, or holding it with the expectation that the value of the asset will increase,” said Stifel Nicolaus analysts in a note to investors. “We believe the FCC has maintained a posture of deliberate ambiguity regarding what possible permutations would be approved.” For instance, the FCC hasn’t issued a public notice on EchoStar’s DBSD buy, possibly a way for the FCC to “retain its full set of options” until “the outcome of the TerreStar auction is known,” said the analysts.

The FCC recently issued a public notice (CD May 24 p18) on various scenarios for pairing the S-band with other spectrum. The docket has received filings from only CTIA and Sprint Nextel -- both were comments extension requests -- perhaps indicating how closely the wireless players are watching. The FCC’s recent public notice on the scenarios may have a cooling effect on some of the more speculative bids, said Tim Farrar, an analyst at TMF Associates. By adding the different possibilities, “the FCC introduced more risk into the process,” possibly discouraging purely financial speculators, he said. “It makes it harder to take a chance.”

Meanwhile, the path toward incentive auctions emerged a little clearer after the Senate Commerce Committee approved Wednesday a bill that would authorize FCC incentive auctions of MSS 2 GHz spectrum. (See separate story in this issue.) “It’s not a foregone conclusion that the FCC will reclaim the 2 GHz spectrum,” said a satellite industry executive. The FCC has said incentive auctions or reclaiming spectrum will only be necessary in certain situations, said the executive.

An EchoStar takeover of TerreStar, giving it control of all of the S-band MSS spectrum if the DBSD purchase goes through, would probably be the best scenario from an FCC standpoint, which is looking to make good on its National Broadband Plan goal for increasing the availability of spectrum for terrestrial broadband use, said Farrar. EchoStar could potentially come up with a plan to use the spectrum immediately, while speculators might need to wait for the regulatory uncertainty of incentive auctions to be resolved before they could strike a deal with another wireless operator to use the spectrum, he said. A Harbinger win seems somewhat less likely because fewer entities would be interested in partnering with the hedge fund, which is already facing serious regulatory uncertainty over its controversial LightSquared network, said Farrar.