A year after signing its largest sales contract ever, Alvarion now risks having that deal fall through.
Under the five-year agreement, Alvarion was to provide Open Range Communications with its WiMax hardware and services in exchange for $20 million to $30 million a year, for a total of $100 million to $150 million.
Open Range provides internet access to remote rural regions in the United States, using broadband frequencies it leases from Globalstar, a satellite-based telecommunication services supplier. However, the U.S. Federal Communications Commission decided that Globalstar doesn't meet standards because its satellite coverage is inadequate. Globalstar had been given until July 2010 to meet the standards. It's working on it, but two weeks ago, the regulatory body suspended its license.
Open Range was allowed to continue operating on Globalstar frequencies for two months in order to provide service to its existing customers while trying to arrange alternative frequencies.
Open Range asked the FCC for an extension, but the regulator initially rejected the request, saying it knew as early as December 2009 that Globalstar would not be an option by July 2010, and therefore had adequate time to arrange for alternatives.
Globalstar, however, had applied for an extension six months before the deadline, and it was the FCC that had delayed addressing the request. The FCC announced its decision after two delays, two months after the July deadline, so that it would be a stretch to claim that Open Range and Globalstar didn't act in a timely manner to avoid the current crisis.
Even if Open Range were to find alternate communication channels during its two-month grace period, it would still face the almost impossible task of adapting its equipment to the new frequencies.
In any case, the FCC subsequently lengthened the extension to the end of January 2011, improving Open Range's chances of finding and implementing alternatives. Should Open Range not succeed, and Globalstar fail to comply with FCC regulations and be re-licensed, further equipment orders from Alvarion might be canceled.
In the meantime, Alvarion has been fully paid for all equipment supplied so far.
Open Range nonetheless has some strong backing for providing internet access to remote communities. It secured federal funding in the form of a $267 million loan from the Department of Agriculture under its Rural Broadband Access Loan program. JPMorgan Chase also kicked in with a $100 million investment in the company.
Alvarion itself already is in a difficult situation. Its second-quarter revenues were $49 million, 16.6% lower this year than in the parallel quarter in 2009. It reported an adjusted net loss (calculated net of options expenses, goodwill write-offs and extraordinary expenses ) of $6.6 million, or 11 cents per share, against a net loss of $605,000 - one cent per share - in the parallel quarter of 2009. The company has laid off 150 employees this year.
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