Summary of TERRESTAR CORP - Yahoo! Finance

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements in Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believe", "project", "expect", "anticipate", "estimate", "intend", "plan", "may", "should", "will", "would", "will be", "will continue", "will likely result", and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements. Please see "Forward-Looking Statements" above and "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008, for a discussion of the uncertainties, risks and assumptions associated with these statements.

The interim financial statements filed on this quarterly report on Form 10-Q and the discussion contained herein should be read in conjunction with our Annual report on Form 10-K for the fiscal year ending December 31, 2008.

Business Overview

TerreStar Corporation was incorporated in 1988 under the laws of the State of Delaware. TerreStar Corporation is in the integrated satellite wireless communications business through its ownership of TerreStar Networks, its principal operating entity, and TerreStar Global.

Our primary business is TerreStar Networks, a Reston, VA based provider of advanced mobile communications services for the North American market.

As of September 30, 2009, we have three wholly-owned subsidiaries, MVH Holdings Inc., Motient Holdings Inc., and TerreStar Holdings Inc., Motient Ventures Holding Inc., a wholly-owned subsidiary of MVH Holdings Inc., directly holds approximately 88% and 86% interests in TerreStar Networks and TerreStar Global, respectively.

Overview

TerreStar Networks Inc.

TerreStar Networks is our principal operating entity. In cooperation with its Canadian partner, 4491165 Canada, we plan to launch an innovative wireless communications system to provide mobile coverage throughout the United States and Canada using small, lightweight and inexpensive handsets similar to today's mobile devices. This system build out will be based on an integrated satellite and ground-based technology which will provide service in most hard-to-reach areas and will provide a nationwide interoperable, survivable and critical communications infrastructure.

By offering mobile satellite service (MSS) using frequencies in the 2GHz band, which are part of what is often known as the "S-band," in conjunction with ancillary terrestrial components (ATC), we can effectively deploy an integrated satellite and terrestrial wireless communications network. Our network will allow a user to utilize a mobile device that will communicate with a traditional land-based wireless network when in range of that network, but communicate with a satellite when not in range of such a land-based network. We intend to provide multiple communications applications, including voice, data and video services. Through TerreStar Networks, we launched our first satellite, TerreStar-1, on July 1, 2009. On July 20, 2009, TerreStar Networks announced that it had completed an end-to-end test phone call over TerreStar-1 between two of TerreStar Network's quad-band GSM and tri-band WCDMA/HSPA smartphones with integrated satellite-terrestrial voice and data capabilities. On August 27, 2009, TerreStar Networks announced the completion of in-orbit testing. TerreStar Networks is now entering the GBBF and systems testing phase.

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2017, renewable, at the lessee's option, for two additional terms of ten years each, subject to FCC renewal of the licenses and no earlier termination. The lease payments due from the lessee are initially $1 million per month and will increase to $2 million per month no later than eight months after lease commencement and could increase to $2 million per month earlier depending upon the satisfaction of certain conditions. Subject to certain conditions, the lessee has an option, but not the obligation, to purchase the licenses, subject to the approval of our board and other necessary consents. The lessee also has a right of first refusal to match the price (less credit for certain amounts paid under the agreement) in any potential transfer of the licenses to a third party.

On September 25, 2009, we entered into a Mobile Satellite Services and Support Agreement with AT&T Mobility II, LLC. Pursuant to this agreement, AT&T will offer certain TerreStar satellite communications services to government and enterprise customers.

Our ability to offer MSS/ATC services depends on TerreStar Networks' ability to receive certain regulatory authorizations allowing it to provide MSS/ATC in the S-band. These authorizations are subject to various regulatory milestones relating to the construction, launch and operational date of the satellite system required to provide this service. We may be required to obtain additional approvals from national and local authorities in connection with the services that we wish to provide in the future. For example, in order to provide ATC in the United States and Canada we must file applications separately from our satellite authorizations. In addition, the manufacturers of our ATC user terminals and base stations will need to obtain FCC equipment certifications and similar certifications in Canada.

TerreStar Networks was initially created as a subsidiary of SkyTerra established to, among other things, develop a satellite communications system using the S-band. On May 11, 2005, we acquired our ownership interest in TerreStar Networks when, in conjunction with a spin-off of TerreStar Networks to the owners of MSV, we purchased an additional $200 million of newly issued TerreStar Networks common stock. In conjunction with this transaction, TerreStar Networks also entered into an agreement with SkyTerra wholly-owned subsidiary, ATC Technologies, LLC (ATC Technologies) pursuant to which TerreStar Networks has a perpetual, royalty-free license to utilize ATC Technologies' patent portfolio in the S-band, including those patents related to ATC, which we anticipate will allow us to deploy a next-generation communications network that seamlessly integrates satellite and terrestrial communications, giving a user ubiquitous wireless coverage in the U.S. and Canada.

Since May 11, 2005, we have consolidated TerreStar Network's financial results in our financial statements.

We have the right to use two 10 MHz blocks of contiguous and unshared MSS S-band spectrum covering a population of over 330 million throughout the United States and Canada. Our entire spectrum is eligible for ATC status. ATC authorization provides the ability to integrate terrestrial mobile services with MSS. We anticipate using this ATC authorization to create a two-way wireless communications network providing coverage, services and applications to mobile and portable wireless users. Our planned network is designed to allow an end user to seamlessly communicate with a terrestrial wireless network or our satellite through a conventional mobile device, optimizing service quality, continuity and geographic coverage. We are also working with vendors to develop our next-generation network.

We believe our network's satellite and terrestrial mobile capabilities will serve the needs of various users, such as U.S. and Canadian government and emergency first responder personnel who require reliable, uninterrupted and interoperable connectivity that can be provided by an integrated satellite and terrestrial network. In October 2006, we entered into a Cooperative Research and Development Agreement (CRADA) with the U.S. Defense Information System Agency to jointly develop a North American emergency response communications network. On October 3, 2008 the CRADA was extended for an additional two years. We expect the CRADA to result in the development of products that will mutually benefit us and the U.S. government. We also believe that our planned network will appeal to a broad base of potential end users, customers and strategic partners, including those in the media, technology and communications sectors, logistics and distribution sectors and other sectors requiring uninterrupted wireless service.

Our Relationship with TerreStar Canada

TerreStar Canada Holdings owns 80% of the voting equity of TerreStar Canada, which in turn holds the Industry Canada approvals needed to launch and operate TerreStar-1 for the purposes of providing mobile satellite services in Canada. We maintain our existing 20% holding of the voting equity of TerreStar Canada. TerreStar Canada holds legal title to the TerreStar-1 satellite and under the terms of an amended and restated Indefeasible Right of Use Agreement dated August 11, 2009 between TerreStar Networks and TerreStar Canada, TerreStar Networks has been granted a right to use up to ninety percent of the capacity, on the TerreStar-1 satellite.

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In July 2009, Trio through 4491165 Canada Inc, a then wholly-owned subsidiary of Trio, completed its acquisition of a 66 2/3% voting equity stake in TerreStar Canada Holdings previously held by 4371585 Canada Inc., a wholly-owned subsidiary of BCE Inc. We retain our existing 33 1/3% voting equity ownership in TerreStar Canada Holdings.

TerreStar Global

TerreStar Global was initially formed in 2005 as a wholly-owned subsidiary of TerreStar Networks. We have consolidated the financial results of TerreStar Global since its inception. In late 2006, TerreStar Networks spun-off TerreStar Global to its stockholders. As a result, TerreStar Corporation became the indirect majority holder of TerreStar Global. In connection with the spin-off, TerreStar Networks made capital contributions to TerreStar Global of $5 million. In late 2006, TerreStar Global also raised an additional $5 million through a rights offering from its shareholders, in proportion to their holdings, the majority of which came from TerreStar Corporation. As of September 30, 2009, TerreStar Corporation owned approximately 86% of the outstanding shares of TerreStar Global.

Through a wholly-owned subsidiary of TerreStar Global, TerreStar Europe (TerreStar Europe), our goal is to build, own and operate a Pan-European integrated mobile satellite and terrestrial communications network to address public safety and disaster relief as well as provide broadband connectivity in rural regions. As Europe's first next-generation integrated mobile satellite and terrestrial communication network, TerreStar Europe plans to deliver universal access and tailored applications over a fully-optimized IP network.

On October 7, 2008, TerreStar Europe filed an application with the European Commission for a Pan-European 2GHz MSS S-band spectrum authorization. TerreStar Europe has entered into a number of contracts in connection with its application, including contracts for the construction and operation of a satellite and earth station.

On May 13, 2009, the European Commission issued a decision denying TerreStar Europe's application regarding 2GHz MSS S-band spectrum authorizations.

On May 25, 2009, TerreStar Europe has brought an action against the European Commission before the Court of First Instance in Luxembourg, seeking an annulment of the May 13, 2009 decision selecting two operators of pan-European mobile satellite services. There can be no assurance that TerreStar Europe will be awarded an authorization.

TerreStar Holdings Inc.

TerreStar Holdings was formed in September 2009 as a wholly-owned subsidiary of TerreStar Corporation. TerreStar 1.4 Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of TerreStar Holdings, holds the FCC licenses for certain 1.4GHz terrestrial spectrum. At September 30, 2009, TerreStar Corporation's consolidated financial statements include TerreStar Holdings and its wholly-owned subsidiary TerreStar 1.4 Holdings LLC.

Current Year's Developments

Satellite

On July 1, 2009, Arianespace, TerreStar-1's launch provider, successfully launched TerreStar-1. On July 14, 2009, we announced that TerreStar-1 had reached its assigned orbital slot and its 18 meter S-band reflector had successfully deployed. On July 20 2009, TerreStar Networks announced that it had completed a call over the satellite and filed certifications of completion of the final FCC and Industry Canada milestones. On August 27, 2009, TerreStar Networks announced the completion of in-orbit testing. TerreStar Networks is now entering the GBBF and systems testing phase.

Entry into Material Definitive Agreements

As previously reported, TerreStar Networks has entered into an agreement with Hughes Network Systems, LLC ("Hughes") with respect to a satellite base subsystem ("S-BSS") based on the GMR1-3G technology (the "Hughes S-BSS Agreement") and a technology development agreement with Qualcomm Incorporated ("Qualcomm") for the development of the GMSA satellite air-interface to be included in certain of its device chipsets based on Qualcomm's EV-DO standard.

On March 31, 2009, TerreStar Networks entered into an agreement with Infineon Technologies AG ("Infineon") for the design and development of a multi-standard mobile platform based on Infineon's innovative software-defined-radio ("SDR") technology that would be compatible with the Hughes S-BSS system (the "Infineon Agreement"). This SDR chipset technology will enable satellite-terrestrial handsets to operate with multiple cellular and satellite-based communications technologies including GSM, GPRS, EDGE, WCDMA, HSDPA, HSUPA and GMR-2G/3G. The Infineon Agreement also contemplates that up to two additional operators (together with TerreStar, each an "Operator") may enter into the Infineon

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Agreement without any increase in the total contract price (assuming the scope and functionality are not changed), and bearing their proportionate share of costs of the total contract price. SkyTerra has jointly entered into the Infineon Agreement with Infineon and TerreStar, such that four Operators in total could enter into the Infineon Agreement. Based on the continued participation of the current Operators, the cost to TerreStar of its portion of the development and software costs incurred under the Infineon Agreement is approximately $19.7 million.

In conjunction with the Infineon Agreement, on March 31, 2009, TerreStar Networks entered into an agreement with Hughes for additional software development work (the "GMR1-3G Software Components Agreement") that will, with the existing Hughes S-BSS Agreement, allow Hughes to deliver the full S-BSS development required with respect to the GMR1-3G air interface to be included in connection with the Infineon SDR technology. SkyTerra has also entered into the GMR1-3G Software Components Agreement. Based on the continued participation of the current Operators, the cost to TerreStar Networks of its portion of the development and software costs incurred under the GMR1-3G Software Components Agreement is approximately $7.9 million.

Both the Infineon Agreement and the GMR1-3G Software Components Agreement contain provisions for the recovery of certain contract costs through royalties and discounts, such that more than half of the costs to be incurred by TerreStar Networks may be subject to later reimbursement.

On September 17, 2009, we entered into a Spectrum Manager Lease Agreement with One Dot Four Corp., an affiliate of Harbinger Capital Partners Master Fund I, Ltd. Pursuant to this agreement, One Dot Four Corp. is leasing the rights to use certain 1.4GHz terrestrial spectrum pursuant to licenses we hold from the FCC. The lease has an initial term through April 23, 2017, renewable, at the lessee's option, for two additional terms of ten years each, subject to FCC renewal of the licenses and no earlier termination. The lease payments due from the lessee are initially $1 million per month and will increase to $2 million per month no later than eight months after lease commencement and could increase to $2 million per month earlier depending upon the satisfaction of certain conditions. Subject to certain conditions, the lessee has an option, but not the obligation, to purchase the licenses, subject to the approval of our board and other necessary consents. The lessee also has a right of first refusal to match the price (less credit for certain amounts paid under the agreement) in any potential transfer of the licenses to a third party.

On September 25, 2009, we entered into a Mobile Satellite Services and Support Agreement with AT&T Mobility II, LLC. Pursuant to this agreement, AT&T plans to offer certain TerreStar satellite communications services to government and enterprise customers.