LightSquared's Bankruptcy Is a Cautionary Tale
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.
With a U.S. presidential election coming up in November, political considerations will at least delay a resolution of the regulatory tangle, said TMF Associates analyst Tim Farrar.
"If it was going to happen, [a spectrum swap] obviously wouldn't happen until after the election," Farrar said. Partly as a result of that concern, Falcone will try to maintain control of the bankruptcy restructuring process for as long as possible, he said. After a defined period, he would have to cede some control of that process to creditors. "His focus would be on preserving control though to the end of the year," Farrar said.
Rather than a pure swap of its troubled spectrum for a cleaner band, LightSquared may pursue a deal to repurpose the L-Band for a portion of someone else's service, Farrar believes. A plan by Dish Network to launch an LTE network on another piece of satellite spectrum, which doesn't have the interference concerns of the L-Band, is now pending before the FCC. If the agency combined its proceedings about Dish's and LightSquared's satellite bands, it might be able to assign the L-Band frequencies as part of Dish's service, specifically for upstream transmissions from client devices, Farrar said.
Limiting that band to upstream use by radios in phones and tablets, rather than the much more powerful ones in base stations, might make the spectrum useful without running a major risk of interference, Farrar said. That would give it value to Dish, which would then buy the spectrum to beef up its cellular performance.
However, testing that solution for interference would take time that Dish might not want to spend, considering it already has an LTE plan just using the spectrum it already knows about.
"At least it's a technically reasonably logical possibility. Whether it's desirable from a financial and a regulatory point of view is the question," Farrar said.
Marshall doubts that Dish wants to take on the risk of that interference testing.
"I would be surprised if Dish got themselves ... financially incumbent on that," he said.
If it can't get satisfaction from the FCC through either of those arrangements, LightSquared may well sue the government, observers say. The company has used increasingly hawkish language in referring to what it sees as its rights to use the spectrum, while simultaneously hiring top-notch legal talent. LightSquared says any interference is caused by GPS receivers instead of its base stations and that the FCC needs to secure the L-Band frequencies for its use.
A lawsuit against the FCC is likely, according to Farrar. However, that suit would be hard and could backfire if the agency found evidence that LightSquared pursued its network plan knowing it would lead to interference.
"I think it's a very risky strategy," Farrar said.