Harbinger's Falcone defends LightSquared's financing

Phil Falcone, the man behind the hedge fund Harbinger Capital Partners, is defending his fund's financial strategy for LightSquared, the startup that plans to build a nationwide wholesale LTE network.

Recent reports have indicated that investors in the fund feel they are being locked out of access to their money as Falcone funnels it into LightSquared, which Harbinger executives deny, according to Forbes. LightSquared has said its wholesale LTE network will allow for terrestrial-only, satellite-only or integrated satellite-terrestrial services (via the terrestrial and MSS spectrum Harbinger scored through a merger in March with satellite operator SkyTerra).

According to Forbes, Falcone said that around $2.6 billion in equity--or roughly 29 percent of Harbinger's $9 billion in assets--is invested in LightSquared. That figure runs counter to an earlier estimate from Reuters, which said that 40 percent of Harbinger's assets were tied up in the venture. Additionally, according to Forbes, Falcone said he has only $430 million of debt sunk into LightSquared, and that he plans to turn that into equity.  

Yet it's unclear exactly how much money the venture will need to get off the ground and meet its demanding buildout targets. (As a condition of its deal to acquire SkyTerra, Harbinger must cover at least 100 million POPs in the U.S. by the end of 2012, 145 million POPs by the end of 2013 and 260 million POPs by the end of 2015.) Credit Suisse Group AG telecom analyst Jonathan Chaplin told Bloomberg Markets magazine that LightSquared will need $5 billion in capital and that Falcone will probably need around $3 billion more to cover losses while LightSquared secures customers. Falcone rejected those estimates, according to Forbes, though he would not provide specific figures.

According to Bloomberg, Falcone got a $750 million, four-year loan from UBS earlier this month. Citing unnamed potential investors who have seen marketing documents, Falcone has been trying to secure $1 billion to $1.5 billion in fresh, long-term capital since June, but has not secured it yet. Falcone, who also spoke with Bloomberg, declined to comment on the matter.

"Spectrum, by its nature, is a finite resource," Falcone told Bloomberg, expressing confidence in his strategy. "I'm a big believer in finite resources."

LightSquared is planning initial LTE trials in Baltimore, Denver, Las Vegas and Phoenix, with commercial launches planned by the third quarter of 2011. The company, which has access to 59 MHz of spectrum, has said its network will consist of around 40,000 cellular base stations covering 92 percent of the U.S. population by 2015. LightSquared CEO Sanjiv Ahuja recently said the company, which has contracted Nokia Siemens Networks to design and build its network, plans to start building the network in December. Ahuja said he is confident that the company is making progress, noting that LightSquared has reached out to about 35 technology companies for possible deals.

For more:
- see this Forbes blog post
- see this Bloomberg Markets magazine article
- see this Forbes article

Related Articles:
Report: LightSquared gets more funding
LightSquared: Can it live up to its wholesale aspirations?
Is Harbinger's $3B bet on LightSquared scaring investors?
LightSquared talks LTE wholesale strategy
LightSquared 4G buildout plans leak
Harbinger forges $7B LTE pact with Nokia Siemens

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