Spectrum startup Ligado, says Recon Analytics analyst Roger Entner, needs to be careful about what it wishes for.
Because it just might get it.
Following years of silence on the topic, FCC Chairman Ajit Pai said Thursday he will vote to approve Ligado's plan to use its L-Band spectrum for 5G. The action still requires a vote by the full Commission, and it could still face opposition from members of Congress, but it nonetheless represents a major breakthrough for Ligado's 5G ambitions.
However, according to several longtime industry analysts including Entner, Ligado's real troubles may just be getting started.
That's because the company's two main options for its L-Band spectrum – a 5G network for industrial Internet of Things (IoT) applications, or a sale to a company like Verizon – are both fraught with obstacles.
Thus, Entner described the FCC's action as a proverbial "poisoned chalice," a development that initially appears to be good news, but in fact may be harmful. After all, the FCC has been working to free up a wide range of other spectrum bands for 5G, thus lowering the value of Ligado's own holdings.
The IoT opportunity
Ligado has ostensibly said its plan is to use its spectrum to build a 5G network for industrial IoT services, including potentially private networks. But that kind of undertaking would require some serious capital, which will likely be difficult or impossible to obtain in the current COVID-19 financial environment.
Moreover, the IoT sector is littered with companies that have found more trouble than opportunity. Comcast, for example, has retooled its LoRa-based MachineQ strategy and is no longer planning to build networks in major US cities; Sigfox has suffered through a number of well-documented setbacks; and Japan's DoCoMo recently switched off its NB-IoT network, presumably because it's not worth running anymore.
Those in the IoT industry have said the problem is that the revenues available from the sale of IoT network services are relatively paltry, considering most IoT business models – from smart meters to fleet monitoring – are only economical if the IoT network connections don't cost more than a few cents per month.
"This is a very challenging business," Entner said, explaining that IoT network services are an "ancillary revenue stream, not a standalone revenue stream."
The spectrum sale opportunity
Ligado's other major option – and one that most observers feel is more likely – is a sale of its spectrum to a company like Verizon. After all, AT&T is still digging its way out of debt from its purchase of Time Warner, and T-Mobile is fresh off its merger with Sprint, while Verizon continues to be dogged by concerns that it needs more spectrum to keep pace with users' demands.
However, Entner and analyst Tim Farrar with TMF Associates agree that Ligado's spectrum isn't exactly something Verizon can quickly and easily snap into its existing operations. First, Ligado's L-Band holdings aren't yet recognized by major standards organizations, and second – and more importantly – companies like Qualcomm and Apple don't yet support the L-Band with their products.
Ligado's spectrum "might have been interesting ten years ago," argued Farrar, noting that Dish Network's spectrum holdings are far more suitable for cellular operations and still the company hasn't managed to sell any of its holdings to a suitor like Verizon.
Others disagree. Wall Street analyst Walter Piecyk with LightShed Partners said that Ligado's spectrum could improve the performance of 5G in millimeter wave spectrum or C-Band spectrum.
Indeed, that's the same argument President Trump's Attorney General William Barr made in a February speech, and reiterated in a statement Thursday. Why the attorney general for the US – essentially America's top cop – is personally interested in the spectrum proceedings of a tiny, private company is unclear at best.
Finally, it's worth noting that Ivan Seidenberg is the chairman of Ligado's board of directors. Seidenberg is the former CEO of Verizon.
The Inmarsat angle
Interestingly, Farrar explained that there is only one clear, undisputed beneficiary of the FCC chairman's decision to move forward on Ligado's proposal: Inmarsat. He said that the two companies years ago inked a sharing agreement for the L-Band that paved the way for Ligado to seek FCC approval for 5G operations in its portion of the spectrum.
However, that agreement also calls on Ligado to pay Inmarsat millions of dollars every year for access to its portion of the L-Band. The current financial situation between the two companies is unclear given that Inmarsat is now a private company. But Farrar estimated that Ligado has paid Inmarsat roughly $1 billion so far and is probably on the hook for another $200 million if it receives FCC approval for its plans.
Farrar said he expects Ligado to seek bankruptcy protection by the end of this year.