LightSquared: It's not over till it's over

editor's corner

After months of waiting and watching for this wireless train wreck, it finally happened. LightSquared filed for Chapter 11 bankruptcy reorganization this week, but the story is far from complete.

There have been a number of epitaphs written for LightSquared over the past few months and certainly over the past week, but Philip Falcone and his Harbinger Capital Partners hedge fund have managed to keep the company afloat for the time being thanks to bankruptcy protection. LightSquared is nowhere closer to building out its planned wholesale terrestrial LTE-based broadband wireless network, but the company is still a going concern, at least for the time being.

Other pundits have compared the LightSquared saga--and I think it qualifies as an industry saga at this point--to that of Iridium, which sank into Chapter 11 nine months after setting up its satellite-phone service in 1998. However, LightSquared from day one has reminded me of NextWave, which promised in the 1990s to be "a carrier's carrier," by offering wholesale access to its 1900 MHz PCS network, which ultimately was never built.

There are lessons to be learned from the cases of both Iridium and NextWave. For one, political wonks and federal regulators believed both companies' dog-and-pony shows, just as they desperately wanted to believe LightSquared's fantastic business plan. In hindsight, one would have to agree that due diligence commonly applied to new technologies and business plans was skipped over at least to some degree in all of these cases.

Subsequently, in all three cases, evolving technology and business ecosystems appear to have passed by the companies' original business plans. Widespread GSM roaming obliterated the need for Iridum's satellite cellphone service for globetrotting executives, while NextWave's wholesale PCS network never came to fruition as partners such as MCI curled up and died and operators who won PCS spectrum successfully used it to retail wireless access to consumers and business rather than wholesaling access other operators.

LightSquared's business plan was blown out of the sky by the ubiquitous use of GPS in a vast array of consumer and business products that can't be shut down just to make one telecom startup's dreams come true, regardless of whose fault the GPS interference is.  

In the cases of Iridium and NextWave, bankruptcy ultimately saved the day for both of them. The revamped Iridium has a nice little business going for it these days (see my recent interview with CEO Matt Desch) , while NextWave got a bankruptcy judge to let it keep its PCS licenses, which the FCC had canceled for nonpayment, and then the company turned around and sold them for a profitable payday to Verizon Wireless (NYSE:VZ), Cingular Wireless--now AT&T (NYSE:T)--and MetroPCS (NYSE:PCS).

One wild card in all of this is Charlie Ergen, chairman of pay-TV company Dish Network. It has been widely rumored that Ergen was the shadow buyer of investor Carl Icahn's stake in LightSquared. Ergen was a very savvy poker player in his younger years, so if he is in involved, he must feel the odds are in his favor.

But odds for what? It's been suggested that Dish might use LightSquared's L-band spectrum for uplinks that wouldn't cause GPS interference, complementing Dish's own S-band spectrum, which the company could use for downlinks on its planned LTE-Advanced network. I could also see Ergen finding a way to bundle up the L-band and S-band spectrum to swap with the FCC for a package of better spectrum (it has been suggested the FCC might want to make some kind of swap as part of its ongoing 2 GHz MSS spectrum rulemaking). Alternatively, Ergen could be imitating Icahn, figuring he can flip a LightSquared investment for some fast cash. Of course, Ergen may not even be involved in this saga as there has been no confirmation (or denial) from Dish that I've seen.

LightSquared still may have some tricks up its sleeve, such as filing a lawsuit demanding that the FCC let it deploy its planned LTE network, which could buy the company time before its final demise or even prevent that outcome from occurring. Yet, even if LightSquared's plans plummet to earth, there is that matter of its L-band spectrum, which someone somewhere surely can find a use for, even if it's not a wholesale terrestrial broadband wireless network.--Tammy

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