LightSquared: a stalled FCC approval process puts LTE network, Sprint partnership on ice

LightSquared has appointed Doug Smith as its new permanent CEO and Chairman of the Board. Prior to this, Smith acted as co-COO for the troubled company, after serving as chief network officer and handling LightSquared's network design, deployment, and operations. Earlier this year, former CEO Philip Falcone stepped down from his position just before the company filed for bankruptcy protection.

LightSquared had grandiose plans to deploy a terrestrial 4G LTE network on spectrum that was formerly allocation for satellite services. Unfortunately, it ran into significant opposition from the GPS industry, which claimed that LightSquared's proposed network would interfere with existing GPS devices. As a result, LightSquared was never able to get approval from the FCC for its planned network, and eventually the money ran out.

The SEC is going after Philip Falcone, the beleaguered hedge fund manager behind Harbinger Capital Partners and the now-bankrupt LightSquared LTE initiative, filing civil fraud charges on Wednesday. In a statement, the director of the SEC’s Division of Enforcement said the charges "read like the final exam in a graduate school course in how to operate a hedge fund unlawfully."

Two separate complaints were filed against Harbinger, Falcone, and Harbinger’s COO Peter Jenson. The first alleges that Falcone (aided and abetted by Jenson) fraudulently loaned himself $113.2 million from a Harbinger fund in order to pay his personal taxes. It also alleges that in exchange for votes that would restrict investors' ability to withdraw money from a Harbinger fund, Falcone cut side deals with favored large investors, letting them take their own money out but making it harder for other investors to do the same. The second complaint is related to bond price manipulations — allegedly, Falcone artificially constricted the supply of some high-yield bonds, making it impossible for short-sellers to profit from the bonds’ falling prices.

A group of lawmakers have sent FCC chairman Julius Genachowski a letter this week asking him to look into whether a spectrum swap with the Department of Defense would allow LightSquared to develop its LTE network, a buildout that had been nixed over GPS interference concerns. While not impossible, a swap would certainly be unprecedented — the DoD would have to give up some of its spectrum holdings elsewhere and take over LightSquared's portion of the L-band. The lawmakers — representatives Jim Moran (D-VA), Maurice Hinchey (D-NY), Steve Rothman (D-NJ), Rodney Alexander (R-LA), and Ander Crenshaw (R-FL) — said this in their letter:

This aligns well with the FCC's goals of extending broadband coverage to the last mile, and the government's $5 billion pledge to make those goals a reality represents at least one potential source of income for LightSquared to lean on.

After what feels like an eternity of drama, a drawn-out fight with US regulators, a failed attempt to provide LTE to Sprint, and the planned exit of its CEO, LightSquared has finally bowed to the inevitable and filed for bankruptcy, reports Bloomberg. The move comes just over a month after the company declared that it was "seriously considering" filing, when CEO Philip Falcone said that the move would allow the company to gain more time to deal with its creditors.

LightSquared declared it had around $1 billion in assets and an equal amount in debt, reports Bloomberg, however Falcone's Harbinger Capital has poured over $3 billion into the company. LightSquared listed a large list of creditors headlined by Boeing and Alcatel-Lucent with near $7.5 million in debt. It has received a smattering of extensions from its creditors, but time finally appears to have run out for LightSquared. Given how many turns there have been in this story so far, this latest news isn't necessarily the final chapter in the saga — LightSquared still own plenty of spectrum that it could sell off and there's no shortage of companies hungry for spectrum of any kind right now.

LightSquared's CEO Philip Falcone will "eventually" step aside as the public face of the company, the Wall Street Journal reports. The move follows months of setbacks for the wireless broadband provider, and is being suggested as a concession that could allow the firm to renegotiate terms with its lenders and prevent it from entering bankruptcy. However, the WSJ quotes a person close to the company as saying that a final agreement may not be reached, and it was still possible that the company would be forced to default on its debts.

As part of the agreement, Falcone would not be able to act as an officer of the firm, and would eventually step down as a director of LightSquared entirely. Falcone himself has said that his role leading the firm was always intended to be temporary. However, there is pressure upon LightSquared to become a "bankruptcy-remote" company, where LightSquared would be restructured in order to prevent it from filing for Chapter 11 bankruptcy protection and in turn protect its creditors. There is also talk of the installation of a director that could block any vote on bankruptcy, or even the shifting of the liability of the debt onto Falcone himself, though he hasn't yet agreed to either of these terms.

Struggling company LightSquared has bought itself two more years to try to launch its 4G LTE network. Today, LightSquared announced that it had reached a deal with satellite provider Inmarsat that would let it delay its payments until after March 31st, 2014. The company paid off an outstanding debt of $56.25 million to Inmarsat, but it won't need to make the $29.6 million payment that was due late last month.

LightSquared interim CEO Doug Smith said that this amended agreement "allows LightSquared an opportunity to focus its efforts on obtaining the necessary regulatory approvals" for its new network, which was shot down by the FCC because it could potentially interfere with GPS service. LightSquared still has plenty of problems, and its fight against the FCC decision looks increasingly unlikely to be successful. However, it's at least managed to extricate itself from its debt to Inmarsat without going into bankruptcy, as backer Philip Falcone previously hinted it might.

Things have been looking grim for LightSquared since its ambitions to build a new LTE network were thwarted by the FCC, and now the hedge fund manager behind the company says he is considering a voluntary bankruptcy. "There are arguments that we would be better off in bankruptcy than not," Philip Falcone said, according to Bloomberg. "LightSquared, if I have to, I'll put it into bankruptcy. I don't care." He continued to say that a bankruptcy would provide the company time to deal with its creditors, and would not necessarily be disastrous for LightSquared's investors as the spectrum it owns still has value unto itself. Whatever the move, it's clear that the company needs to take action soon; Sprint called off its deal with LightSquared last month, just weeks after the company announced plans to lay off almost half of its workforce.

If you've read any of the public statements that LightSquared has made in the ongoing saga of its attempted LTE launch, you've no doubt been struck by the sense of outrage emanating from the company. Sprint's decision today to "exercise its right" to back out of using LightSquared hasn't cowed the company, if anything it's made LightSquared even more apoplectic.

True, the company's press release about Sprint's decision was all roses, with phrases like "Sprint's decision will enhance our working capital" and "Sprint has been a valued partner." However, in another press release that was surely timed to coincide with Sprint's announcement, LightSquared once again lit into the FCC for its decision to nix the fledgling LTE network. It accuses the FCC of running afoul of "constitutional issues" in a "bait and switch by the federal government of historic scale."

As The Wall Street Journal had reported last night, Sprint has announced today that it'll be formally terminating its agreement to partner with LightSquared on an LTE deployment in the controversial 1600MHz band. Of course, LightSquared had never intended for its 1600MHz holdings to be controversial — the controversy was brought to it when nagging concerns over interference with GPS couldn't be solved to the FCC's satisfaction, effectively ending the company's aspiration for deploying a nationwide commercial network. Pursuant to the termination, Sprint is returning $65 million in cash to LightSquared and leaves a faint glimmer of hope: "We remain open to considering future spectrum hosting agreements with LightSquared, should they resolve these interference issues, as well as other interested spectrum holders."

Sprint customers will be happy to know that the company claims its so-called Network Vision plan for LTE deployment remains "on schedule and on budget" despite the failed LightSquared deal. Indeed, LightSquared represented just a fraction of Sprint's available options for moving to LTE over the next couple years — it had previously said that refarming existing CDMA and iDEN spectrum was priority one, while Clearwire expects to be making TD-LTE available on the 2500MHz band in 2013.

The Wall Street Journal is reporting that Sprint will officially announce Friday that it's terminating its planned 15-year agreement with LightSquared for LTE service, leaving the wireless wholesaler without a major partner for its 4G network — a network rendered all but dead by the FCC's ruling that it couldn't be built over GPS interference concerns. Needless to say, the official termination comes as no surprise, and it's something that Sprint has hinted it would do in recent weeks.

LightSquared's 1600MHz network had originally factored prominently into Sprint's LTE deployment strategy over the next couple years, but it's not like the carrier is without a backup plan: it's already in the process of refarming its CDMA and iDEN spectrum to make room for LTE service, and it'll be working with longtime partner Clearwire to deploy TD-LTE in the same 2500MHz band where its WiMAX network currently operates.

Things are going from bad to worse for LightSquared, with Bloomberg reporting that Sprint could end its partnership with the company as early as next week. The two signed a 15-year agreement last summer to build a new nationwide LTE network, however the FCC has since denied LightSquared's application due to GPS interference concerns. Sprint has already granted several extensions, including an additional six weeks in January, but Bloomberg's sources say that no further extensions are coming. LightSquared has until March 15th to meet certain conditions of its agreement with Sprint, but it's not clear how — or if — the company plans to work around the FCC's decision, which it says is based on "flawed conclusions." The news comes soon after LightSquared laid off nearly half of its 330-person workforce and defaulted on a payment of $56.25 million to UK-based partner Inmarsat. Should Sprint cancel the deal as expected, it will be forced to return $65 million that was paid out at the beginning of the deal — though that probably won't be much consolation for LightSquared at this point.

Things have been looking grim for LightSquared's efforts to build a new LTE network, with the FCC recently deciding to reject its network application due to concerns over GPS interference. The bad news continues to come, with the company defaulting on a payment to one of its satellite partners on Monday, and announcing plans to lay off almost half of its workforce today. The partner in question, UK-based Inmarsat, was owed an installment payment of $56.25 million. For its part, LightSquared is contending that there are several outstanding issues between the two companies at the moment, and that the payment is not technically due yet, but that didn't stop Inmarsat from informing LightSquared that it would be terminating their agreement if it does not receive payment within 60 days.

Making matters worse was LightSquared's announcement today that it would be laying off almost half of its 330 employees in a "prudent and necessary cost savings measure to ensure the long-term success of the company." While LightSquared is due to be paid $65 million from Spint next month should its deal with the carrier come to an early close, without federal approval it's hard to see how even that cash infusion will be able to turn around LightSquared's fortunes.

LightSquared's plans to build out an LTE network appear to be in danger, but the company stands to regain some cash if the plans fall through. If the FCC doesn't approve the deal by mid-March, Sprint will have to return $65 million that LightSquared paid to the carrier last year as part of the proposed 15-year agreement to share buildout expenses and wireless spectrum. And with yesterday's news that the FCC will reject the proposal due to longstanding concerns that the network would interfere with GPS, it's looking very likely that Sprint will have to cut LightSquared a check soon. LightSquared claims that testing by the National Telecommunications and Information Administration is flawed, but it's hard to say what the company will be able to do in the next month to change the FCC's mind.

As we heard yesterday, the FCC has rejected LightSquared's application for a mobile broadband network on grounds that it would interfere with GPS receivers. However, the Commission also implied that GPS technology is partially to blame for the rejection. In a letter posted today (PDF), FCC spokesperson Tammy Sun said that the proposal had "revealed challenges to removing regulatory barriers on spectrum that restrict use of that spectrum for mobile broadband. This includes receivers that pick up signals from spectrum uses in neighboring bands." Government agencies and public stakeholders, she said, must work together to "free up spectrum for mobile broadband."

This statement corroborates LightSquared's previous claims that GPS devices go outside their allotted bandwidth, resulting in interference with mobile networks. Even so, the company still isn't in the clear. Following the NTIA's proposal, the FCC has stated that "there is no practical way to mitigate potential interference at this time," and is declining to lift the prohibition on the LightSquared network. Tomorrow, the FCC will post a notice seeking public comment on the matter.

LightSquared's attempts to launch a new LTE network may be at an end, with the Wall Street Journal and AllThingsD reporting that the FCC will be rejecting the company's application after the National Telecommunications and Information Administration cited concerns due to potential GPS interference. In its letter to the FCC, the NTIA stated that after extensive testing it had concluded that "LightSquared's proposed mobile broadband network will impact GPS services and that there is no practical way to mitigate the potential interference at this time." The move comes after months of lobbying on the part of LightSquared, which had complained that GPS manufacturers themselves were to blame for the interference issues.

In response to today's announcements, LightSquared said it "profoundly disagrees" with the NTIA's recommendation, which was based on "flawed conclusions," but that it "remains committed to working towards a resolution." However, with Sprint having already pegged March as the date it would end its partnership with LightSquared should the FCC issue not be resolved, it's hard to see just what that resolution would look like.

Yesterday the US House of Representatives' Committee on Transportation and Infrastructure heard from a number of bodies, including the Air Transport Association and the Air Line Pilots Association, that LightSquared's proposed LTE network would directly interfere with the safe running of flights. The hearing was told that the network would not be compatible with safety-of-flight systems that rely on GPS to improve their ability to prevent in-air collisions.

LightSquared has filed a letter with the FCC asking the regulator to set tighter standards for GPS devices to prevent interference with other wireless services. The would-be LTE network wants the Commission to regulate the market in order to prevent manufacturers from making navigation devices that use frequencies outside of their allocated bands. It believes that such devices are the cause of the interference issues that have led to a government committee unanimously agreeing that LightSquared's LTE network interferes with GPS devices.

With mounting evidence that its proposed use of spectrum would have a detrimental impact on GPS reliability, LightSquared seems to be hedging its 4G hopes on the argument that affected devices don't warrant interference protection from the US government. Now the FCC is asking for public opinion on the matter, a development which would seem to indicate that LightSquared's plans aren't doomed just yet. Indeed, in an email statement to Bloomberg, executive vice president Jeff Carlisle says his company is "extremely pleased" with the news. Your feedback is welcome at any time between now and February 27th; responses will then be collected until March 13th.

Even if LightSquared makes a fair point in accusing GPS makers of unjustly relying on its spectrum, it's tough to envision a path forward for the company's ambitions — particularly when numerous reports (including flight system concerns from the FAA) have demonstrated legitimate real-world interference. We wouldn't be surprised to see the FCC err on the side of caution here. Still, if you're willing to fight for the cause of wholesale LTE, hit the source link below.

The saga of LightSquared may be coming to its final turn, as no fewer than nine federal agencies have unanimously agreed that its LTE network interferes with GPS in such a way that it can't be fixed. The group of agencies make up the National Space-Based Positioning and Timing Executive Committee, which also cited an FAA report that said the LightSquared network would interfere with aircraft safety systems. Although the committee doesn't have the final say, its decision is likely to hold quite a lot of sway with the FCC when it decides whether to allow LightSquared to launch its network.

It doesn't look good for LightSquared, which in turn may mean bad news for Sprint's LTE plans. Sprint had been planning on utilizing some of LightSquared's services, but now it will need to look elsewhere. That just-announced LTE Galaxy Nexus on Sprint may have to wait around a it longer than originally planned for nationwide 4G LTE.

Dan Hesse has been chatty today, dropping two pieces of knowledge on investors today that could bear on actual Sprint users. The first is that the "unlimited" data plan that Hesse and Sprint have long touted for smartphones may not be as truly unlimited as claimed. About one percent of users on Sprint's network reportedly have their data throttled, according to Hesse: "For those that want to abuse it, we can knock them off" (see update below). Presumably he's referring to smartphone users, as Sprint already eliminated unlimited data for hotspots and other data-only plans. The throttling is mainly in line with what other carriers have admitted to but is contrary to Sprint's own advertising, which purports that Sprint is alone in offering "truly unlimited data."

That's what might affect the one percent (no, not that one percent) now, but what might affect all Sprint customers in the future is the bumpy and winding road to Sprint's LTE launch. The latest turn is that Hesse has told investors that Sprint is putting further investment in LTE partner LightSquared on hold. A Sprint spokesman elaborated, saying "The companies have agreed to realigning our deployment timeline to coincide with FCC actions." That may seem like unimportant money shifting, but it's a bad sign given LightSquared's difficulty getting FCC approval for its 4G network in light of possible GPS interference. Sprint recently gave LightSquared a small vote of confidence by giving it another thirty days to get FCC approval, but this decision seems to undercut that confidence just a bit.

Sprint is proving to be a patient business partner: according to The Wall Street Journal, the carrier has extended the deadline for LightSquared to gain FCC approval on its proposed LTE network by 30 days. When the 15-year agreement was first announced this past summer, the companies expected to receive the go-ahead from Washington no later than December 31st. Of course, that was all before GPS-related concerns brought intense scrutiny upon LightSquared's plans.

At stake is the company's goal of a nationwide wholesale 4G network to be hosted by Sprint, the fruits of which would also be available to other LightSquared partners including Best Buy and Leap Wireless. The 1600MHz spectrum will also bolster the scope of Sprint's LTE deployment, which the carrier has already begun laying the groundwork on. For its part, LightSquared has emphatically rejected the idea of its network wreaking havoc on GPS tech and has proven willing to make some concessions to get the FCC's nod. With the deadline clock ticking anew, the company seems determined to get an answer soon — as evidenced by the petition it filed with the agency last month. While an unfavorable decision could potentially doom LightSquared, Sprint's aggressive Network Vision itinerary would likely find a way to survive; spectrum holdings in the 800 / 1900MHz bands and a renewed dedication to Clearwire make for a nice Plan B.

LightSquared's proposed LTE network has been met with strong opposition from the FCC due to the network's spectrum potentially interference with GPS receivers. The company's now trying to bargain its way to approval through additional testing and by postponing and eliminating a few planned network power boosts.

In a memo submitted to the FCC on Monday, LightSquared asked for testing and approval on the upper 10MHz of its network from the National Executive Committee for Space-Based Positioning, Navigation, and Timing (PNT Excomm). One of the agency's main charges is to provide uninterrupted availability of PNT services, so LightSquared is asking it to look into whether this spectrum will truly interfere with GPS devices.

LightSquared is attempting to launch a new LTE network, to provide 4G service both to carriers like Sprint and to end users. However, the spectrum it has lined up for that network has the potential to interfere with GPS receivers used by both consumers and the military. The FCC has provisionally given the company permission to launch, depending on whether or not tests show that the network can operate without interference.

A draft of a test commissioned by the government has leaked, and the results don't look good for LightSquared. Apparently, the "great majority" of GPS devices tested experienced interference, meaning that "millions of fielded GPS units are not compatible" if the report is confirmed. LightSquared is clearly not happy with the leak, calling for a government investigation and saying the report is "patently false" because the test doesn't take into account the actual power levels LightSquared will use to transmit its LTE signal.