February 20, 2012 6:14 pm

LightSquared misses payment to Inmarsat

A lucrative revenue stream appeared to have ended for Inmarsat on Monday when the UK satellite operator said that LightSquared, its US partner, had failed to pay a $56.25m instalment for use of radio spectrum in the US.

Inmarsat was due to receive $175m – a quarter of expected earnings – this year from renting its spectrum to LightSquared, a venture founded by billionaire hedge fund manager Philip Falcone, which was building a broadband mobile phone network in the US.

However, the US Federal Communications Commission last week said it would withdraw permission for LightSquared to build the network after tests indicated that it would interfere with the Global Positioning System used by the military, airlines and other industries.

Under its arrangement with LightSquared, Inmarsat was due to receive an instalment payment from the US company after the completion of the first phase of their agreement. However, LightSquared said on Monday that final payment was not due until Inmarsat replied to several issues that it had raised.

“LightSquared has raised several matters that require resolution before the first phase comes to a close,” LightSquared said. The company did not detail the outstanding issues involved.

Inmarsat said it was working to resolve the issue with LightSquared within 60 days, but could not be certain it would recover the payment. 

Mr Falcone said last week that he was trying to find a way to rescue the LightSquared business, despite facing a new lawsuit filed last week by investors in his Harbinger Capital who claim they were unaware that the bulk of their funds would be invested in LightSquared.

Although the payments from LightSquared have been a welcome bonus for Inmarsat, analysts have always treated these with some caution given the uncertainty surrounding the LightSquared project. Many had factored them in for only two or at most five years.

Shares in Inmarsat, which have lost about 30 per cent of their value over the past year following two profit warnings, closed 1 per cent to 477.1p.

Analysts said the ending of the LightSquared revenues might increase the likelihood of someone bidding for Inmarsat. The company, which provides satellite calls to ships and people working in remote locations, has been the subject of recent takeover speculation, as large volumes of the stock have traded on the market.

Inmarsat, which has a market value of £2.1bn, is going through an uncertain period, as revenues in its core maritime business fall as sailors switch from making phone calls to using email and the internet, and new competitors such as Ericsson move into the market. In order to keep up with market trends, Inmarsat is having to spend $1.2bn on launching three new satellites for broadband communications.

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