TerreStar Heading for Chapter 11

According to the Wall Street Journal reports, satellite phone service provider TerreStar is heading for chapter 11. 

TerreStar currently has over one billion dollars in debt.  Most of this debt was spent on their first satellite called the TerreStar-1 which was launched in July 2009.

Since the launch of the TerreStar-1 satellite the company has been borrowing two hundred million a year to get the TerreStar-2 launched.  A lot of money with little income stream.  According to the Wall Street Journal TerreStar has less than 15 million in cash left.  The Wall Street Journal expects bankruptcy protection to be applied for in the next few days.  This is not good news for LightSquared who owns half of TerreStar’s stock.

TerreStar’s service is operational today.  They are currently selling hybrid satellite/cellular phones for $799.00 which will work everywhere in the U.S.  The TerreStar satellite phone has the capability to first use AT&T cellular service when available then switch to satellite when cellular service is not available.  This is very similar to the first generation Globalstar satellite phone which could use Verizon cellular service when available then switch to the Globalstar satellite service when cellular service is not available.  The TerreStar satellite service is $25.00 a month plus 65 cents per minute. 

LightSquared’s plan is to build a new LTE network across the U.S. using a spectrum inherited from SkyTerra.  SkyTerra is planning the launch of their satellite which will operate in the L Band (1.6GHz) to fill in the gaps in the ground network.  If SkyTerra is successful in launching their satellite it will be the largest satellite even launched after the TerreStar-1 satellite.

LightSquared is owned by Harbinger who owns 48% of TerreStar stock and 30% of Inmarsat.  The TerreStar system operates at 2GHz which is not compatible with the LightSquared’s network.

LightSquared only has twelve million invested in TerreStar’s stock.  LightSquared is planning to spend seven billion on a national network, but they do not have a single customer.

This problem has been repeated over and over in the satellite phone industry.  Iridium built a network then was bought out of bankruptcy and is still operating at the largest LEO satellite network on the planet.  Globalstar also filed bankruptcy and was bought out of bankruptcy.  Globalstar’s satellite constellation started failing, but as of a few weeks ago they have six of twenty four new satellites to create a new constellation.  Globalstar is considered the most popular satellite phone on the market and has a very large subscriber base compared to its peers.  

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