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Sat-phone operator TerreStar's tits swinging skyward?

Good thing LightSquared only has a toe on the rug

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Satellite-phone operator TerreStar is heading for Chapter 11 the Wall Street Journal reports, putting America's personal satellite phone network at risk.

TerreStar has more than $1bn in debt, most of which got spent on its first bird, the imaginatively-named TerreStar-1, which went up in July 2009.

Since then the company has been borrowing money to get TerreStar-2 launched, burning more than $200m a year on average. Now there's less than $15m in the till, according to the Wall Street Journal. The paper expects bankruptcy protection to be applied for in the next few days, which is bad news for LightSquared who owns almost half of TerreStar's common stock.

But at least TerreStar is operational today, and for $799 you can buy a phone which not only works across the USA but switches to AT&T's GSM/HSPA network when it can, though satellite connectivity will set you back an additional $25 a month and 65 cents a minute.

It's hard for Europeans, particularly in the UK, to understand how patchy coverage is in the USA. We might moan about not-spots, but that's a reflection of how we've come to expect coverage to be ubiquitous. America is a much larger country, and one with huge areas where mobile coverage isn't economical so satellite phones make a lot more sense.

But not at 65 cents a minute, as LightSquared is well aware. LightSquared's audacious plan is to built a completely new LTE network across the country, using spectrum inherited from another satellite operator: SkyTerra. SkyTerra hasn't launched any birds yet, but once it does (currently scheduled for December) they'll operate in L Band (1.6GHz) to fill in the gaps in the ground network.

LightSquared is owned by hedge fund Harbinger, who acquired a load of space-based holdings while putting LightSquared together, including 48 per cent of the common stock in TerreStar, and a significant chunk (almost 30 per cent) of Immersat too. TerreStar operates at 2GHz so won't be compatible with LightSquared's final network, but it does give the company an operational network now.

Luckily, for LightSquared, it seems that its investment in TerreStar isn't huge - about $12m according to the 'Journal. That might sound like a lot, but when you're planning to spend $7bn building a national network, and have yet to announce a single customer, then $12m is small change.

But for TerreStar investors things look bleak, with the company looking at exchanging debt for equity to keep operational while it sorts out some serious restructuring. ®

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