Updated 9/16/10 at 3 p.m. ET to reflect comments from Globalstar.
The FCC dealt a blow to rural broadband operator Open Range Communications by denying a request from MSS operator Globalstar for a 16-month extension to come into compliance with the commission's rules regarding the Ancillary Terrestrial Component (ATC) of Globalstar's satellite system. That means Globalstar's ATC authority has been suspended, leaving its lease partner, Open Range Communications, without spectrum and likely without funding to roll out WiMAX services to rural communities.
Open Range Communications and Globalstar made headlines in 2008 when the two were granted authority from the FCC to enter into a lease agreement whereby Open Range would use the ATC component to roll out WiMAX services to 540 communities in 17 states. The U.S. Department of Agriculture's Rural Utilities Service (RUS) had granted Open Range a $267-million loan in 2008 and Open Range secured a $100 million equity investment from One Equity Partners, the private equity investment unit of JPMorgan Chase.
In its ruling this week, the FCC stated it had already given Globalstar a temporary waiver in 2008 to come into compliance with the ATC rules. This time, the FCC said, Globalstar was not justified in asking for another extension. The rule Globalstar hasn't complied with is what is known as the "gating criteria" that requires an MSS operator to provide continuously available satellite service in specified geographic areas, maintain spare satellites and make MSS commercially available throughout the required coverage area. The FCC also requires ATC licensees to integrate the terrestrial and MSS offerings.
The commission declared that Open Range won't be allowed to continue to use Globalstar's ATC authority to provide service, but it is granting Open Range special authority in a limited set of markets, for a period of 60 days, to find other spectrum.
In July, RUS informed Open Range that its $267-million loan had been suspended, according to an article in Stimulatingbroadband.com. By July 1, Globalstar was supposed to have complied to the ATC rules. In a letter issued to Open Range, RUS stated that "all future advances are hereby suspended on the grounds that Globalstar's non-compliance constitutes a Material Adverse effect on Open Range's ability to perform its obligations."
With a significant chunk of its operating spectrum in limbo, Open Range is at risk of defaulting on the RUS loan and possibly its loans from its equity partners such as JP Morgan. In a letter dated Sept. 10 from RUS Administrator Jonathan Adelstein to FCC Chairman Julius Genachowski, Adelstein said the action was taken to protect the RUS loan program.
Of course CTIA shouted with glee as the carrier industry has always been vehemently opposed to allowing MSS operators to offer terrestrial services, or even have spectrum at all since they got it for free.
"CTIA is pleased with the FCC's decision to deny Globalstar's request for waiver of the Commission's ancillary terrestrial component rules and to reject Open Range's request to operate its terrestrial network without a satellite partner," CTIA President Steve Largent said in a statement. "Globalstar's failure to live up to the gating criteria, and to subsequently live up to the conditions upon which the commission granted it a waiver, validated CTIA's concerns. Globalstar could not meet the satellite needs of American consumers and instead sought to parlay a satellite license into a terrestrial network. Had the FCC granted Globalstar and Open Range's requests, it would have amounted to an end-run of the commission's spectrum auctions and would have eviscerated the commission's licensing rules."
Indeed, the FCC has always been careful about requiring the MSS industry to roll out satellite services in addition to terrestrial services. It wanted to see a successful MSS industry and agreed with MSS players early on that adding a terrestrial component would result in better device form factors and greater penetration in buildings, a drawback to today's satellite services.
It appears Globalstar was banking on the fact that rural broadband is an initiative near and dear to the heart of Genachowski and the commissioners and hoped that would prompt the FCC to rule in its favor. Open Range had the spectrum and the funding to make rural broadband a reality across some 500 rural communities. "Globalstar maintains that these public interest factors are more compelling now, as denial of the requested extensions would force Open Range to discontinue wireless broadband service to rural customers who are currently receiving it," the FCC said in its ruling.
The FCC's ruling was the right one, but the consequences will be hitting a company that had one of the best chances to fulfill the FCC's goal of bringing broadband to underserved areas. There a number of parties hurt by Globalstar's lack of follow through. For instance, Alvarion and WiChorus, now part of Tellabs, have contracts with Open Range.
I don't know where Open Range will find new spectrum in 60 days. Even if it does, customers will face disruption because of incompatible devices. Moreover, I think it's highly unlikely Globalstar will ever come into compliance now. Open Range can't wait around.--Lynnette
P.S.: While I just wrote about a big disappointment for rural broadband, take a look at one company that is making a success in the wireless rural broadband market. Check it out here.
Update: Globalstar has since released a statement regarding the FCC's ruling: "We are disappointed with the FCC's decision, but with the first launch of our second generation satellites scheduled in just over a month, Globalstar is working to meet the ATC gating criteria as quickly as possible," said Barbee Ponder, Globalstar's general counsel and vice president of regulatory affairs. "We also intend to work with our ATC partner Open Range Communications to minimize the impact this decision may have on its customers. We continue to be encouraged by the FCC's initiation of proceedings to make wireless spectrum available for mobile broadband networks using MSS spectrum. In these proceedings we will seek to obtain the maximum flexibility possible to provide innovative broadband services over the terrestrial component of our licensed spectrum."