Will the Government Get its ($73.5 M) Cash Back from Open Range?

October 6, 2011

The good news for U.S. taxpayers is that Open Range Communications, the now-bankrupt startup that was trying to build rural wireless networks, never received the full amount of the $267 million loan it won from the U.S. Department of Agriculture back in 2008. The bad news is — according to research into Open Range’s agreement with the USDA — Open Range did receive $78 million from the USDA and has only paid back $4.5 million, leaving the government at the top of the creditors’ list of the Chapter 11-ed Open Range.

Sidecut Reports, which has been following the Open Range saga closely — we filed a Freedom of Information Act request with the USDA this summer to obtain information about the loan deal — has also learned from the company’s bankruptcy filing that Open Range owes several entities debts in the millions of dollars, the biggest being with network-infrastructure firms, including a $7.5 million tab with system integrator G4S Technology and a $5.59 million debt with Velocitel, which describes itself as a “wireless network services company.” G4S Technology, formerly known as Adesta LLC, was apparently proud of its work with Open Range, even posting a customer success story page on its website.

Fierce Wireless, which broke the story on Open Range’s shutdown earlier this week, is also now wondering whether or not there is a buyer for Open Range’s assets. Should there be a sale the most likely first-in-line creditor is the USDA, which in a statement said it had restructured the original loan deal earlier this spring and now “will be working with the Department of Justice on behalf of the American people to protect the federal government’s interest in the loan.” Presumably, to get back as much of the outstanding $73.5 million as possible.

During its brief life, Open Range was always a bit mysterious to the public — information was hard to come by on the company’s website and requests for interviews or facts about the company’s operations were routinely ignored — but according to research into the loan deal, Open Range did in fact provide independent financial audits to the USDA in 2009 and 2010 to demonstrate that the company was not in financial trouble, and regularly provided business plans to the USDA that demonstrated paths to success. Originally, the company pledged to provide “affordable high-speed broadband Internet and voice services to more than six million citizens in 546 underserved and rural communities” within five years; however, the company only ever launched spare services in what its CEO said was “143-ish” markets and though Open Range never confirmed a subscriber number, some reports put its user base at 20,000 customers at most.

To qualify for the USDA loan, Open Range had also publicly stated that it had received $100 million in financing from One Equity Partners, the private equity arm of banking house J.P. Morgan. Open Range’s bankruptcy filing also lists Vision Opportunity Master Fund, Ltd. as an equity holder with 57 percent of Open Range’s common stock (Open Range apparently retains 97 percent of a Series B preferred stock and 99.6 percent of Series C preferred stock, so it is not clear what if any control Vision Opportunity has). According to a Reuters story on the bankruptcy filing, Open Range said it has assets of $114 million and $110 million in debts, which means that creditors may be left solvent, provided that Open Range’s assets — which are most likely its network infrastructure — can be sold or transferred at rates that help the company balance its ledger.

That may be a problem, since the technology used by Open Range is WiMAX, which is being left in the dust as most service providers turn to the competing Long Term Evolution (LTE) standard for next-generation deployments. And according to the bankruptcy filing, not all those assets may be paid for since networking gear provider Alvarion — which had proudly announced a deal to sell Open Range as much as $100 million in gear two years ago — is listed as being owed a little more than $1.96 million.

Though Open Range’s plan to provide broadband to rural communities in 17 different states may have merely sounded ambitious when it was concieved, the reality on the ground was that the company’s deal to lease spectrum from former satellite services operator Globalstar was shaky and eventually collapsed, following the FCC’s decision last year to revoke Globalstar’s spectrum licenses (this situation is well explained by the StimulatingBroadband blog, which broke the story, and by Fierce Wireless, which has also followed the company closely). The spectrum problem resulted in USDA Rural Utilities Service Administrator Jonathan Adelstein famously sending a letter to FCC chairman Julius Genachowski that said in part that without access to the Globalstar spectrum, “the current business plan upon which the [Open Range] loan was approved is no longer feasible.”

Though Open Range won some extensions from the FCC to keep using the spectrum to serve current customers while it sought alternatives, including its widely touted but basically empty “deal” with LightSquared (which was never finalized), there was apparently no good way forward and as a result Open Range filed for Chapter 11, with its final fate to be decided in bankruptcy court.

While the USDA pointed out that the Open Range loan was approved by the previous (Bush) administration, it was hopeful that it would eventually get back the money it lent out. In a statement, the USDA said: “While we are of course disappointed this company did not succeed, rural infrastructure loans are essential to economic development in many communities throughout the country and 99 percent of these loans are repaid successfully.” For 73.5 million reasons, the U.S. taxpayers certainly hope that’s the case with Open Range.

Sprint: Unlimited Focus Driving Need for Clearwire?

August 20, 2011

Watching last week’s PGA tournament I was struck by a new Sprint TV ad that powerfully, forcefully and very clearly played up Sprint’s ability to offer true unlimited data plans, as compared to the tiered data plans of its top competitors, Verizon, AT&T and T-Mobile. By putting all its chips behind unlimited data, it comes as little surprise around here that Sprint has also apparently decided it’s time to bring the Clearwire spectrum assets back in-house — because if the key to Sprint’s ability to compete in the near future is its unlimited data plans, those plans need the spectrum advantage controlled by Clearwire. With the separate Clearwire-retail strategy now fizzled out, there’s no reason for Sprint not to consolidate its ownership of the biggest chunk of wireless spectrum that will be usable and available in the near future, namely Clearwire’s holdings at 2.5 GHz.

Why now? While Sprint’s 4G smartphones have been the power-user’s choice since their introduction a year ago, Sprint had always kinda-sorta hedged its bets on the unlimited question, offering murky “we reserve the right to add per-bit pricing” kind of statements over the past year. But the new ads, and revelations like Sprint selling more 4G devices than Verizon last quarter are the kind of signals that say: Maybe this WiMAX network isn’t quite dead yet. We have no official insight into Sprint’s plans, but we are betting that it was no accident that CEO Dan Hesse revealed Sprint’s 4G device sales numbers for last quarter, the first time Sprint has broken that number out. And why not, when you are kicking Verizon’s behind? Not a bad performance for ol’ No. 3.

Though the story is apparently leaking out in bits there are still some details yet to emerge — such as how much dough the cable companies might chip in, and who will get to use the networks that will run on the Clearwire/Sprint spectrum. But the bottom line is now that Verizon (and AT&T, whenever it gets there) has tied itself to expensive data-capped plans for its 4G LTE network, Sprint can hammer home on the unlimited front as long as it has access to the huge spectrum trove that it buried inside Clearwire back in 2008. That means either funding Clearwire’s continuing buildout or buying up whatever it doesn’t already own to ensure that the Clearwire/Sprint duo don’t lose any of those valuable airwaves because they’re not building any networks on them.

This statement, taken from Clearwire’s 2010 annual report, explains the problem in detail:

The FCC also clarified the procedure by which BRS and EBS licensees must demonstrate substantial service, and required them to demonstrate substantial service by May 1, 2011. Substantial service showings demonstrate to the FCC that a licensee is not warehousing spectrum. If a BRS or EBS licensee fails to demonstrate substantial service by May 1, 2011, its license may be canceled and made available for re-licensing. For our spectrum, we believe that we will satisfy the substantial service requirements for all owned and leased licenses associated with each of our commercially launched markets, whether Pre-4G or 4G. For licenses covering areas outside of our
commercially launched markets, we are in the process of executing a plan to comply with the substantial service requirement by the deadline. Our ability, however, to meet the substantial service deadline for every owned or leased license in areas outside of our launched markets is uncertain, and we will likely seek waivers or extensions of the deadline from the FCC in some circumstances.

So — with Clearwire’s corporate structure now completely Sprint-friendly (meaning that former CEO Bill Morrow and lead investor Craig McCaw are out of the day-to-day picture) and the retail business shelved, Hesse and Co. can step in and reclaim the spectrum assets Sprint buried inside Clearwire back in 2008, when Sprint was bleeding money like a stuck pig and nobody was really sure just how the whole 4G thing would turn out.

Though Sprint threw a nod in LightSquared’s direction recently it should be noted that the Sprint-LightSquared agreement is one of those things that will only come to pass if LightSquared somehow gets enough money to build a network and gets FCC clearance for its spectrum use. Sprint doesn’t lose if LightSquared can’t get its plane off the ground. But Sprint does need to stay viable in an era of behemoths, and the only current available working spectrum to do so (meaning there are proven devices for it) is the Clearwire-controlled swath at 2.5 GHz.

And what about the future? Clearwire’s news about fully committing to LTE going forward is a smart PR ploy to let potential new investors know that Clearwire and Sprint aren’t stuck on WiMAX. In fact we could foresee in the not so distant future a WiMAX/LTE “superphone” that uses hybrid chips to connect to the existing WiMAX network for regular high-speed 4G signals and then can also tap into whatever “Super LTE” network Clearwire and Sprint can build in the cities where it’s available. That’s how a limited-cities launch might work — you’d always have the current pretty fast 4G speeds to fall back on, and could really whoop it up in the cities where the new super-fast LTE network gets lit.

But the key to it all, is you gotta have the spectrum. Remember how we told you those “voluntary” broadcast spectrum auctions weren’t taking place this year? Right now Clearwire’s unused boatload of spectrum is just sitting there, basically in Sprint’s hands already, albeit with the risk of disappearing if networks aren’t built on it. So yes, it is time for Sprint to step up and lead the way to a fully funded buildout. Let’s see who else comes along for the ride. Like say, maybe, a company that just bought a hardware company to meld with its mobile operating system… and now needs a superfast network to outrun the iPhone with LTE?

MagicJack’s VoIP Scheme Slammed by AT&T, FCC

April 11, 2011

Hat tip to our old pal Andy Abramson for tracking a legal development in the VoIP world — seems like the factually elusive Daniel Borislow got his MagicJack VoIP scheme slammed by AT&T and the FCC. Andy’s post has a thorough explanation of the beef, which we will try to distill further — basically it appears that Dan was trying to subsidize the “low-cost” MagicJack plan by billing AT&T and other large carriers for completing calls, a la the old Iowa-based Free Conferencing dodges of the near past.

It was interesting to see that the FCC didn’t rule that MagicJack’s plan was illegal, immoral or unlawful — it simply agreed with AT&T that MagicJack had tried to fudge the way it described its service and that error meant that MagicJack can’t charge AT&T the fees it is claiming. What that means for us MagicJack and Borislow fans is that the Dan show probably ain’t over yet, though as we stated before you have to wonder how people can continue to put good money into a stock of a company that calls something like this a financial release.

While we are waiting to hear back from Dan (who sometimes responds to our emails, but sometimes not) anyone seen the heralded magicjack Plus or the hinted-at femtojack, which less cynical “news reporters” apparently expect to hit the streets any day now? C’mon Dan, can we at least see if one of your promises comes true?

UPDATE: Dan Borislow apparently replied to a blog post by Forbes’ Eric Savitz on this subject. You have to click to open the comments but our man Dan is in a fighting mood… as he says (we have every reason to believe it is really Dan posting) about AT&T, “We are owed the money, we suplied [sic] a valuable service and when AT&T tried to strongarm us, we told them where to go.” Read the blog post for more.