Are Harbinger Capital's LTE plans too good to be true?

Updated 3/29/2010, 3 p.m. ET to reflect comments from Verizon Wireless

Stunning news came out over the weekend that New York private equity firm Harbinger Capital Partners plans to deploy a nationwide Long-Term Evolution (LTE) network using satellite spectrum after getting the nod from the FCC to merge with SkyTerra.

In a letter filed with the FCC on Friday, Harbinger laid out its plans to design and create a wholesale mobile network that will be open to any company that wants to offer mobile broadband. The firm, which is creating a new corporation to acquire SkyTerra, said it plans to use MSS spectrum, the Ancillary Terrestrial Component (ATC) spectrum and terrestrial-only spectrum along with spectrum hosting and pooling agreements with all of the proper roaming agreements to swiftly roll out a network that will cover all major markets by the end of the second quarter 2013. (Please read the entire story below.)

After reading the letter, I'm beginning to wonder how Harbinger is going to pull it off. Here are some of my initial thoughts and questions:

  • The network will include SkyTerra's next-generation satellites, about 36,000 terrestrial base stations, multi-frequency mode user handsets and other consumer devices, a terrestrial cell site and backhaul network, network operations centers and the networks of other terrestrial carriers with whom Harbinger plans to have roaming agreements with. Just how much is that going to cost and where is Harbinger going to get the capital? The cost could very well exceed $6 billion, and is it guaranteed that consumer electronics companies, retailers and other providers will choose SkyTerra's network over, say Verizon Wireless, which is required to open up its C-block spectrum to anyone who wants to connect?
  • The network, according to Harbinger, will not only be a wholesale-only network but a data-only network as well. Does that mean Voice over LTE will not be supported? What does that mean for operators (T-Mobile has been mentioned) that want to connect to the network and offer a voice component?
  • Harbinger notes that "ATC devices will be subsidized to enable retail distribution customers to sell devices at conventional prices." Who is going to subsidize these devices?
  • Harbinger's LTE network is going to be rolled out in a hodgepodge of spectrum bands, such as 1.4 GHz and 1.6 GHz. Will devices support them all? And what impact will that have on a choice of devices and cost (hence the reason for the subsidy)? Will software-defined radio be able to address this when the time comes?
  • Will mobile operators, which paid billions for their 700 MHz spectrum, challenge Harbinger's move given the fact that MSS providers were given their spectrum for free and the FCC is allowing Harbinger to consolidate a large amount of spectrum? Verizon Wireless spokesman Jeffrey Nelson told FierceBroadbandWireless that "both the bureau's process and the resulting restrictions are troubling. We are reviewing our options." The restrictions he is referring to have to do with Harbinger not allowing more than 25 percent of its traffic to come from AT&T and Verizon Wireless. Which brings up another question, is that really open access?

One thing the satellite industry has on its side is the fact that chip makers, namely Qualcomm, are beginning to put satellite and cellular phone technology into baseband chips embedded in multi-mode phones. Interestingly, ABI Research analyst Kevin Burden noted back in July that satellite providers appeared to have an ulterior motive to position themselves as 4G spectrum providers.

"The likely number of public-safety, law-enforcement and government market adopters is not enough to support a viable, high-growth market," noted Burden. "But when you dig deeper, there appears to be a hidden agenda related to using the spectrum for 4G cellular services over the long term."

Burden noted that handset chip makers and vendors appear to be preparing for that "satellite tax" by embedding dormant satellite connectivity in their LTE chipsets and devices. Moreover, the spectrum that satellite operators have is enough to offer 4G services in areas where dedicated spectrum for terrestrial operators is scarce and valued at a premium.

Burden's theory was that greenfield satellite companies would forge short-term roaming partnerships with mobile operators, and then, when LTE services are deployed, position themselves to be acquired by these major operators, including their prized spectrum. Could that be what Harbinger is hoping will happen?--Lynnette