LightSquared Prospects Dim with FCC Proposals

The FCC International Bureau proposed to block LightSquared from beginning terrestrial service (CD Feb 15 p1), severely dampening the company’s prospects and possibly increasing the likelihood of a bankruptcy filing in the near future. While the agency initiated Wednesday a proceeding on the proposals, many consider that process largely perfunctory, said industry observers.

The bureau released its public notice Wednesday (http://xrl.us/bmr9y6), asking for comment on agency proposals to rescind the conditioned approval to offer terrestrial services in the L-band and suspend the company’s ancillary terrestrial component (ATC) authority. The notice followed a Tuesday letter from NTIA to the FCC voicing concern about major interference. The proposed suspension would mean LightSquared is unable to use the spectrum even as gap-filling terrestrial service. The ATC item was surprising, but it may be a way to preempt LightSquared’s frequent claim that its wireless service was fully authorized through its existing ATC authorization, said an industry lawyer. Comments are due March 1 in docket 11-109.

FCC Chairman Julius Genachowski seemed to indicate he’s preparing for a legal fight. “We have been and will be working very closely with out legal team here to make sure everything’s consistent with the law,” he told reporters after Wednesday’s FCC meeting. Several lawyers seemed incredulous that LightSquared could mount a convincing suit against the agency or the GPS industry, but that may not stop the company from trying.

LightSquared saw the decision as politically driven. “We ask the FCC to restore American values of rule of law and regulatory certainty to help America maintain its place as a global leader in both public safety and economic development,” said CEO Sanjiv Ahuja. Despite a series of regulatory approvals and government buildout mandates for LightSquared that has cost the company around $4 billion, “the FCC changed its mind,” he said. “There can be no more devastating blow to private industry and confidence in the consistency of the FCC’s decision-making process. It is not surprising that, as with all innovative new technologies, scientific concerns became an issue. In this case, the government decided to choose winners and losers. Politicians, rather than engineers and scientists, dictated the solution to the problem from Washington. To leave this problem unresolved is the height of bureaucratic irresponsibility and undermines the very principles that once made America the best place in the world to do business.” The company will continue to work toward a solution, said Ahuja.

The FCC decision may make a LightSquared bankruptcy filing increasingly likely, said analysts. The company could continue to fight within the FCC’s proceeding, but a bankruptcy filing would also put off some big payments, including $56.25 million to Inmarsat, due Saturday, as part of a spectrum deal between the two companies. Phil Falcone, CEO of Harbinger Capital Partners, LightSquared’s largest investor, told Reuters a bankruptcy is off the table. Right now, there are two likely outcomes for LightSquared, said mobile satellite service analyst Tim Farrar: Either “file for bankruptcy over the weekend or don’t file and get in very public fight between Harbinger and its investors,” he said. The public notice isn’t an event covered by the debt agreements “so the debt holders don’t have the leverage to force a bankruptcy now, but they don’t want more money to go out the door if the issue can’t be solved,” Farrar said. “They would rather have the contracts be frozen.”

Sprint Nextel’s network sharing agreement with LightSquared remains intact for now, though development remains “halted,” said a Sprint spokesmen. “Sprint and LightSquared previously extended their agreement until mid-March to give LightSquared additional time to address issues associated with the 1.6 spectrum,” he said. “We have seen the government’s recent comments and are reviewing them. Sprint has been supportive of LightSquared’s business plans and efforts to resolve potential interference issues expediently."

Sen. Chuck Grassley, R-Iowa, won’t drop his hold of FCC nominees Ajit Pai and Jessica Rosenworcel, and will continue his investigation of the FCC’s actions on LightSquared. “Prematurely granting a conditional waiver in a rushed process is not the way to get the right result,” he said. “Now that the interference issue is settled, we need to find out more than ever why the FCC did what it did. The agency put this project on a fast track for approval with what appears to have been completely inadequate technical research. After all of this time and expense, still, no one outside of the agency knows why. That’s not the way the people’s government should work. The public’s business ought to be public."

Grassley asked for help in compelling the release of the documents he seeks. “Now that the FCC has backtracked on LightSquared, I'd like to see my Senate colleagues join my document request, especially the chairman of the only Senate committee that the FCC is willing to answer,” he said of Commerce Committee Chairman Jay Rockefeller, D-W.Va. “If we don’t find out how and why the FCC failed to avoid this controversy, then it will keep operating as a closed shop instead of the open, publicly accountable agency it should be,” Grassley said. A resolution of the LightSquared issue before the FCC may help in the production of documents for Grassley, said a congressional staffer. The FCC didn’t comment on the document requests.

The Coalition to Save Our GPS, which led the lobbying effort against LightSquared, celebrated the commission’s decision. “The FCC has acted appropriately by declaring that its non-interference condition has not been satisfied and that LightSquared will not be permitted to move forward with its proposal to build a nationwide high-powered terrestrial network in the mobile satellite band,” said Jim Kirkland, Trimble general counsel and a leader in the coalition. “The Coalition stands ready to work with the NTIA and the FCC to address the important policy issues relating to longer term use of satellite spectrum and reduction of potential interference to maximize the efficient use of all satellite spectrum.”

Capitol Hill Celebrates

Several legislators pointed to the decision as a success. “I am glad that the FCC has realized what our military leaders and Congress have been saying all along -- LightSquared’s proposed network will dangerously impair GPS receivers and our military’s ability to train and operate,” said House Armed Services Subcommittee on Strategic Forces Chairman Mike Turner, R-Ohio. “This responsible step by the FCC, albeit months late, is encouraging. I hope that they will continue this course and will not allow any harmful interference to our national security GPS network. Congress will have to safeguard this spectrum, whether it is held by LightSquared or any successor."

The FCC made “the right decision,” said a joint statement by House Science Committee Chairman Ralph Hall, R-Texas, and Investigations Subcommittee Chairman Paul Broun, R-Ga. “Opening up more spectrum for broadband remains a national interest, but not at the expense of GPS. This is, however, a two way street. GPS receiver manufacturers, users, and agencies also have to be mindful that spectrum scarcity will continue to be a challenge and must work together to efficiently utilize spectrum."

"Interference of the GPS signal would have cost American small businesses billions of dollars to retrofit their current devices -- adding yet another significant cost burden that would cause more harm to our already unstable economy,” said House Small Business Committee Chairman Sam Graves, R-Mo. His position “has always been that LightSquared’s plans should not be approved unless tests proved no interference for GPS devices,” he said. “I hope that technology continues to be developed in a way that addresses the GPS interference concern on behalf of the many small businesses that rely on them, and that we can find a way to have a win-win on this issue."

The loss of a potential new competitor is unfortunate, said House Communications Subcommittee Ranking Member Anna Eshoo, D-Calif. “I've advocated from the beginning for a fact-based and engineering-driven process to examine the potential impact of LightSquared’s operations in the adjacent” GPS band, she said. “While I'm disappointed that the interference testing has shown LightSquared will not be able to move forward, we still have to continue to look for new and creative ways to drive competition and expand wireless broadband deployment across the country.”

"Any Kansan with a GPS in his or her car was going to be affected by the interference this conflicting network posed,” said Sen. Pat Roberts, R-Kan. He offered an amendment last year restricting the FCC from allowing LightSquared to proceed until interference concerns were resolved. “While I remain committed to the continued expansion of broadband networks, there was simply too much at stake with this proposal that put our public and national security at risk,” Roberts said. “It would have been irresponsible to allow any network to interfere with a system so important to moving goods, defending our homeland and feeding the world.” Rep. Steve Austria who offered a similar amendment in the House, also praised the decision. “While continuing to advance broadband technology is important, any expansion must be done in a responsible manner that ensures current GPS systems are not interfered with,” the Ohio Republican said.

The LightSquared decision could affect the agency’s review of Dish Network, said observers. Dish has pointed to the LightSquared decision has an important precedent for agency approval for similar waivers to offer terrestrial service in the S-band. The commission “precedent that LightSquared set is clearly suspect,” said an industry executive. As a result, the FCC seems more likely to approve Dish’s associated transfers of control, but moving the waiver issue to a new rulemaking or another proceeding, he said. Dish didn’t comment.

"What I think this says about spectrum policy is that the FCC forged ahead without looking at ramifications,” said Davina Sashkin, a communications lawyer with Fletcher Heald, which isn’t involved in the dispute. The agency “became enamored of technology without looking at practical implications and now they have to pay the price of pulling the rug from under the whole thing,” she said. The LightSquared issue “will make people think more carefully about making decision driven by sense of spectrum crisis without contemplating all the consequences,” said Farrar. “It does highlight spectrum allocation is very difficult but also highlights not to run into things just because they” are believed to be an easy win for spectrum needs, which applies to both the FCC and Congress, he said.

The FCC should use this opportunity to look at GPS receiver standards, said Public Knowledge Legal Director Harold Feld. “While it is possible that a way forward may emerge from the comments in response to the FCC’s public notice, it would appear that LightSquared will not fill this need for wholesale access any time soon,” he said. “This development makes it all the more imperative that the FCC continue its work on GPS receiver standards, so that this valuable spectrum can ultimately be used to meet our ever-growing demand for terrestrial wireless services."

There may still be hope for the spectrum, said analyst Jeff Silva of Medley Global Advisors. The decision could mean “an existential blow to LightSquared, though there’s still a possibility the startup could rise from the ashes later if the agency were to rebalance receiver standards in such a way as to shift the interference burden to GPS users,” he said. “But it appears to be a fanciful long shot."

The move is positive for Clearwire and negative for Sprint, analysts said. Carriers and other that had been hoping to buy capacity from LightSquared will need to look elsewhere, benefiting Clearwire, said Credit Suisse’s Jonathan Chaplin. He expects one or more deals with Clearwire by mid-year. Sprint, on the other hand, will need to return a portion -- likely less than half -- of the $310 million that LightSquared had paid, he said. Any event which decreases the supply of available spectrum should be a positive for Clearwire, which remains one of the last holders of “immediately deployable excess spectrum,” said Jonathan Schildkraut with Evercore. He said one positive for Sprint is if Clearwire signs wholesale agreements, it would require Sprint’s participation to deliver nationwide coverage.

LightSquared has a 15-year agreement with Sprint, in which Sprint would effectively host LightSquared’s spectrum on its developing Network Vision project, Collins Stewart’s Tom Eagan said. The elimination of a large customer takes away some of the potential upside for the Network Vision project, he said. The FCC’s decision has no direct impact on the efforts of Dish and its request to be allowed to covert its recently acquired satellite spectrum to the traditional ground based use common to existing wireless networks, Eagan said.