"PE Firm Plans Open LTE Network to Challenge AT&T and Verizon

A New York private equity firm plans to build a multibillion-dollar 4G wireless network that will cover most of the country by 2015. The ambitious plan by Harbinger Capital Partners relies on deploying a Long Term Evolution network over spectrum owned by a few satellite companies — and would create an open wholesale wireless network available to retail companies, PC manufacturers or anyone who wants to offer mobile broadband.

Last November I wrote that certain satellite companies were visiting Washington hoping to somehow cash in on the 100 MHz of spectrum they collectively have. After reading the FCC order and Harbinger’s plans filed with the FCC on Friday night, it looks like those satellite firms may have found a way thanks to the FCC’s faith in mobile broadband as a means ofpromoting innovation and competition.

A Competitive Threat

The new network will rely initially on 23 MHz spectrum owned by SkyTerra, which is owned by Harbinger, and could later include spectrum from Terrestar Networks, another satellite firm in which Harbinger holds a stake. The Harbinger network could help ensure competition among the major wireless carriers thanks to the conditions the FCC has placed on the spectrum that the private equity firm plans to use as part an agreement to let Harbinger take control of SkyTerra — namely that SkyTerra has to be a wholesaler, and that traffic from the largest and second-largest wireless carriers in the U.S. cannot comprise more than 25 percent of the traffic over the SkyTerra/Harbinger network. This means AT&T and Verizon could not buy up huge chunks of the network or spectrum to keep others off of it.

Harbinger’s plans to build out a mobile broadband network stretch all the way back to a 2003 order allowing satellite companies owning spectrum in the L and S bands to build out terrestrial networks in conjunction with their satellite networks. The idea was to offer an alternative to the cellular carriers, but the stringent satellite requirement (that the cell companies lobbied hard for) has proved tough. It’s expensive to launch and build satellites(plus build out a terrestrial network), and any phones working on such a system are pretty clunky. Another strike is unless the satellite companies found a willing terrestrial partner, the initial satellite mobile broadband speeds were too slow.

However, the FCC has given appears ready to give the satellite spectrum holders a break byrelaxing the satellite aspect of the network buildout allowing Harbinger to consolidate so much spectrum in exchange for guarantees about how fast the terrestrial network will be built out. Plus the FCC will enforce the conditions outlined above to ensure that the SkyTerra/Harbinger network is a real alternative to the cellular carriers.

Harbinger’s LTE Buildout Plans

The planned network would launch before the third quarter of 2011 and cover 9 million people, with trials set initially for Denver and Phoenix. The next milestone is that 100 million people have to be covered by the end of 2012, 145 million by the end of 2013 and at least 260 million people in the United States by the end of 2015. Harbinger said in its statements to the FCC that all major markets will be installed by the end of the second quarter of 2013.

However, the 36,000 base stations that Harbinger plans to use, along with the tower sites, backhaul and other gear associated with a terrestrial network will require billions of dollars. Analyst Chris King at Stifel Nicolaus estimates that Verizon’s LTE network will cost about $5 billion to deploy, and Verizon already has some of its network elements in place. Clearwire has also spent billions on its network, with analyst estimates ranging from $3 billion to about $6 billion.

Harbinger didn’t talk about it’s capital-raising plans, but a spokesman emailed me the following statement:

Harbinger is in discussions with a number of companies, which we cannot disclose, that provide a variety of services and solutions, but have not finalized anything with any potential partners.

SkyTerra and Terrestar have been searching without success for partners to help build their terrestrial networks for years, with Intel once being floated as a potential candidate.

For those spectrum nerds out there, Harbinger says it has access to the following hertz:

At the outset, the network will have no less than 23 MHz of spectrum, consisting of 8 MHz of 1.4 GHz terrestrial spectrum, access to 5 MHz of 1.6 GHz terrestrial spectrum and 10 MHz of MSS/ATC L-band spectrum. Through a cooperation agreement with Inmarsat and associated waivers of the Commission’s ATC rules, by 2013 Harbinger will have access to an additional 30 MHz of ATC spectrum.

By 2011, when the SkyTerra network would launch, the nation will have 4G network coverage from Verizon, Clearwire, MetroPCS and AT&T. Clearwire’s cable partners and Sprint seem to be getting some real traction with their customers as resellers of the Clearwire service, an indication that consumers don’t care what mobile broadband provider they buy from, as long as they can get access to the mobile web.

So in looking at that list and realizing the AT&T and Verizon can’t play, and that Clearwire-Sprint has plenty of spectrum to deploy, the most logical partners for Harbinger’s expansion are likely T-Mobile or Leap. My friend Tim Farrar, a satellite industry analyst who saw the Harbinger action coming weeks ago, thinks Harbinger will hit up T-Mobile. I think he’s right.