LightSquared's Bankruptcy a Wake-up Call for Mobile Investors

The would-be hybrid mobile operator's woes prove that wireless is an unpredictable investment
By Stephen Lawson
News May 16th 2012

After more than a year of active testing and debate over LightSquared's plan for a nationwide, wholesale 4G network, the now bankrupt company may end up as no more than a cautionary tale for mobile investors.

Industry observers say there are three things that might bring some value to LightSquared's main asset, a chunk of disputed radio spectrum: The company could swap the spectrum for another block, sell it to another carrier, or win a lawsuit against the U.S. Federal Communications Commission. But all three are unlikely, they said.

LightSquared filed for bankruptcy protection on Monday, declaring assets of US$4.48 billion and debts of $2.29 billion. Lengthy negotiations with its creditors failed to produce an agreement on how to handle the debt. Philip Falcone, whose Harbinger Capital Partners owns most of LightSquared, said in a statement that declaring bankruptcy will give the company more time to gain regulatory approval for its network. In its bankruptcy filing on Monday, the company acknowledged that getting permission to build its network may take two years, a prediction some observers say is optimistic.

LightSquared and its predecessor companies had won approvals from the FCC to launch an LTE mobile data network using spectrum located next to the frequencies used by GPS. It planned to sell access to that network at wholesale to other carriers, alongside service on satellites that are already in the air. But a waiver that let the company sell those services separately was conditioned on resolving any interference that might affect GPS. Based on tests that showed continued interference, the FCC said in February it would kill LightSquared's LTE plan.

With FCC approval, spectrum that had been awarded to LightSquared's predecessor companies without an auction would have been transformed into a much more valuable commodity, because cellular data is far more popular than the spectrum's original purpose, satellite mobile services. But as Falcone learned, not all mobile deals are a sure bet.

"I think it's a lesson for the investment community that there are a lot of technology and commercial considerations that come into these types of network deployments ... that are outside of the norm," said Tolaga Research analyst Phil Marshall. "You need to be quite conservative when looking at spectrum."

As the FCC and mobile operators seek additional spectrum to fuel networks that can satisfy consumers' demands for high-speed data, LightSquared's travails may be repeated in other bands, Marshall said. Efforts to use frequencies in the 2.3GHz and 1.5GHz bands may reveal interference concerns, he said. "There certainly are other places where this can or will occur," Marshall said.

LightSquared, insisting on its rights to the so-called L-Band spectrum where it planned to deploy its network, has said the FCC is obligated to swap that spectrum for another band if it doesn't allow the LTE network. That solution probably can't happen soon, if ever.

"If the FCC were to do a spectrum swap, they would basically be saying, 'Yeah, we made a mistake,'" Marshall said. In addition, that would set a precedent that the FCC doesn't want, giving a company spectrum in return for frequencies that it never unconditionally controlled, he said.