Ruling Gives Satellite Firm Time to Order Spare Satellite

PARIS — Mobile satellite services operator ICO Global's success in getting U.S. regulators to loosen a requirement for having a spare satellite available before rolling out a ground-repeater network will buy the start-up operator badly needed time before it must find fresh cash for the planned satellite's construction but has some industry officials guessing about ICO's strategy.

The U.S. Federal Communications Commission (FCC), in one of its last rulings before Chairman Kevin J. Martin left his job, granted ICO a license Jan. 15 to build a network of ground-based signal repeaters that will use the same frequencies as ICO's orbiting satellite.

The ground network, called an Ancillary Terrestrial Component (ATC), is viewed as critical by mobile satellite services companies insofar as it will allow their systems to provide customer links in areas beyond the reach of a satellite — indoors and in tunnels and urban canyons, for example.

Reston, Va.-based ICO does not have a spare satellite under contract, and the debate before the FCC was whether the company should have to demonstrate that a spare is on its way before winning an ATC license.

Two ICO competitors, TerreStar Corp. and SkyTerra, the former Mobile Satellite Ventures, both based in Reston, have spent heavily on spare satellites, which would be available if their first spacecraft failed once commercial service began.

But in its ruling, the FCC decided that ICO could receive an ATC license so long as the company committed to having a spare spacecraft in place within one year of starting commercial ATC operations.

The FCC acknowledged protests from competitor Inmarsat of London that ICO was playing games with regulatory wording in the hope that, once it starts commercial service, the FCC will waive the spare-satellite rule entirely.

But the U.S. regulator said ICO, in a Jan. 6 statement to the agency, "clarifies that it will not commence ATC operations 'until firm arrangements are in place to meet the spare satellite requirement.'" The statement provides a satisfactory basis for concluding that ICO will not commence ATC operations until compliance with the one-year deadline is substantially assured."

ICO spokesman Christopher Doherty confirmed in a Jan. 21 e-mail that ICO believes it must "have a spare satellite completed within one year of commencing ATC operations."

ICO has begun field-trials of its two-way video and data service and has tentatively set commercial operations to begin in 2010.

When commercial ATC operation will start is unclear. While an ATC license gives a mobile satellite services company free access to terrestrial spectrum and one day may lure strategic partners such as cellular network operators, for the moment ATC represents a large capital investment that none of the mobile satellite services operators can afford on their own.

But without an ATC service, the business model for ICO, TerreStar and SkyTerra is at risk of collapsing. All three companies had assumed they would strike deals with wealthy strategic partners long before 2009 to finance ATC rollout.

Industry officials say ICO and TerreStar, both of which are developing services in the S-band section of the radio spectrum, are likely to forge some kind of joint operating agreement, or even merge, given the challenging U.S. economy.

If that occurs, ICO may be able to persuade regulators that TerreStar's second satellite, under construction at Space Systems/Loral in Palo Alto, Calif., can double as ICO's ground spare as well. SkyTerra won a similar regulatory concession, saying its Canadian- and U.S.-registered satellites will provide mutual backup.

Assuming the FCC does not further relax the spare-satellite requirement, the agency's decision may be of limited long-term benefit to ICO. To build a satellite of the type ICO and TerreStar plan to use takes around three years, meaning the company will need to strike a deal with TerreStar or commit to a new satellite in the medium term.

One industry official said TerreStar has a powerful motivation to slow or stop construction of its TerreStar-2 satellite given the FCC ruling on ICO. But TerreStar General Counsel Douglas Brandon said the company's agreement with its creditors, including hedge-fund Harbinger and satellite-television provider EchoStar, does not permit TerreStar to use the cash now paying for TerreStar-2 for any other purpose.

In a Jan. 22 interview, Brandon declined to say whether TerreStar would attempt to save its investors' cash by slowing work on the second satellite. He said TerreStar was happy to see the FCC decision because it provides flexibility not only to ICO, but to companies like TerreStar as well. He pointed to the FCC decision to loosen frequency-interference rules for ICO because some of the projects that planned to use the same spectrum have since been canceled.

"We have similar waivers pending at the FCC [for issues not related to the spare satellite] and we hope to get the same treatment from the FCC," Brandon said. The TerresStar-1 satellite is scheduled for launch by June 30.