Is 4G Via Satellite Destined to Fail?

Last Friday, four executives of satellite holding company TerreStar Networks suddenly resigned, leaving just three people behind to fill the void. I don’t expect this lack of management to last for too long, but until TerreStar calls me back with details, I’m betting that the change in management signals a change in TerreStar’s strategy in that it’s no longer looking for a larger partner to help it build and finance a combined 4G satellite and terrestrial network, but is preparing to move ahead alone.

TerreStar is the new name of a former pager company called Motient. In 2004 Motient scored the regulatory jackpot when, despite protests from the cellular carriers, the Federal Communications Commission approved plans for an ancillary terrestrial component (ATC) network. Since then, it has found itself tangled up in a web of financial transactions designed to maximize the value of its two bands of satellite spectrum.

One band went to Mobile Satellite Ventures, which owns spectrum in the L band. The rest went with TerreStar (which owns spectrum in the S band), then a division of Motient. In 2007, Motient changed its name to TerreStar and narrowed its focus to finding a partner for the multibillion-dollar network buildout that would have to occur for TerreStar to actually offer a 4G ATC network.

Intel and even the names of a few cable networks were floated, but no deal came. After the 700 MHz auctions left incumbents with most of the terrestrial spectrum winnings, it looked like no one would be interested in partnering with TerreStar (or any other ATC player) to build out a de novo wireless data network.

And that’s likely why TerreStar is replacing its executive team and has taken on $300 million from a hedge fund and EchoStar Communications to launch a new satellite, the first step in building out a hybrid network. It needs to move from finding a partner to provide service to actually providing the service itself. Otherwise its valuation, which is based on its plans to provide a hybrid 4G offering, plummets.

TerreStar completed the financing in February. At the same time, two members of EchoStar along with two members from hedge fund Harbinger Capital Partners joined the company’s board. EchoStar’s presence is notable because its board members have actual experience operating a satellite network. Now they will likely bring on management that already has an understanding of what it takes to operate and launch one, too.

But I think investors in these ATC networks are going to get snookered by the lure of satellite networks again. In the 90s the promise was that of a satellite phone that would work anywhere. It was a plan that looked good on paper, but no one could figure out a way to get it into the existing cellular ecosystem.

This time around the ATC guys have a handset prototype, but my guess is they’re not going to actually see this thing through. The idea of a competitive wireless data network looks great on paper, too, but the cost of building it out and launching into the existing cellular market is likely to defeat the satellite guys all over again.

photo from NASA