LightSquared will face funding problems, LTE launch delays - 2011 predictions

LightSquared is a venture capital-based startup (funded largely by Harbinger Capital Partners) that has big aspirations to build a nationwide, wholesale LTE network by year-end 2015. However, we think the company will struggle to fulfill its vision as potential investors question its viability. 

The company, which merged with mobile satellite firm SkyTerra in March, plans to use a little-known FCC rule that allows mobile satellite spectrum holders to back up their satellite coverage with terrestrial towers. But LightSquared will have to build its network quickly if it wants to meet the FCC guidelines. The company must cover 100 million people by the end of 2012, 145 million people by the end of 2013 and at least 260 million people by the end of 2015. (Harbinger set the timetable and the FCC approved it.)

LightSquared plans initial trials in Baltimore, Denver, Las Vegas and Phoenix, with the network set to launch before third quarter of 2011.

That's a pretty aggressive deployment strategy and one that will require plenty of funding. In October, LightSquared reported that it secured $850 million in debt, which it said it will use to build its LTE wholesale network. But even with the additional funding, LightSquared has said it only has about $2 billion in equity and debt proceeds and commitments. Analysts have estimated the cost of LightSquared's network at around $5 billion.

Aside from funding, we also believe LightSquared's business model will pose challenges. CEO Sanjiv Ahuja has compared LightSquared to "a wireless utility" that will provide wholesale wireless connectivity to any interested party, from wireless operators to cable companies to retailers. But that model has not worked well in the telecom sector in the past, and we don't think it will in the future either.

LightSquared will face funding problems, LTE launch delays - 2011 predictions