LightSquared Takes Constitutionality Stance

The FCC’s proposal to block LightSquared’s ability to provide terrestrial service would violate the company’s constitutional rights, LightSquared said in an FCC filing Friday. The agency has said it plans to rescind the waiver and suspend the company’s underlying ancillary terrestrial component. Sprint Nextel also said Friday it will terminate its network sharing agreement with LightSquared.

"The proposed FCC action would constitute an uncompensated, confiscatory taking of property rights associated with the spectrum license,” said LightSquared in a filing in docket 11-109. The FCC’s proposal would also violate due process by “changing the law after the fact on the basis of thin and compromised evidence,” the company said. LightSquared has said the FCC should not have relied on the NTIA’s conclusions, which said LightSquared would pose a danger to GPS services, because they were based on biased testing. The FCC would also violate the LightSquared’s equal protection rights, the company said.

LightSquared’s constitutional arguments stem from savings and loan crisis litigation from the 1980s, said General Counsel Curtis Lu. That litigation, known as the Winstar litigation, revolved around the change of regulatory standing at the time, and some S&L companies sued the government, with some cases going to the Supreme Court, he said. “Many of those savings and loan institutions prevailed,” Lu told reporters on a conference call.

The FCC must “exhaust all reasonable alternatives” before lifting the waiver, LightSquared’s filing said. If the agency finds LightSquared’s past proposals aren’t sufficient, the FCC and NTIA must “identify and engineer a partial or total exchange of alternative terrestrial spectrum rights,” said LightSquared. Executive Vice President Jeff Carlisle declined to discuss specific spectrum, on the conference call.

Some expect the company to pursue litigation against the FCC if the agency decides against LightSquared, though a time frame is hard to predict, said executives. If the International Bureau makes the decision to pull the waiver, LightSquared must file an application for review, which would then be considered by the full commission, said Tim Farrar, an mobile satellite services consultant. The commission wouldn’t have any deadline to act and could postpone a decision until after the presidential election, if it wanted, he said. The company could only take the decision to appeals court after the full commission made a decision, he said.

GPS interests supported the FCC’s proposals Friday. The “rescission of” LightSquared’s waiver “is the only appropriate action in light of the interference data developed through the Technical Working Group process and the confirming studies subsequently conducted at the direction of NTIA,” said the U.S. GPS Industry Council. The USGIC supports the agency’s decision to suspend the ATC authority, it said. “All parties except LightSquared have reached the conclusion” that its service isn’t compatible with GPS services, said the Coalition to Save Our GPS.

Meanwhile, Sprint announced it would cancel its network sharing agreement. Sprint said it was supportive of LightSquared’s efforts toward interference resolution. “Due to these unresolved issues, and subject to the provisions of the agreement, Sprint has elected to exercise its right to terminate the agreement announced last summer,” the company said. “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 said it will give back at least $65 million of the $310 million LightSquared has paid Sprint.

"While unfortunate, termination of the agreement will have no impact on Sprint’s current customers and is not material to Sprint’s ongoing business operations,” that carrier said. “Network Vision remains on schedule and on budget, and we look forward to begin launching our 4G LTE network mid-year.” With LightSquared out of the picture, Sprint will have to rely on Clearwire’s network to meet its users’ bandwidth demands, Wells Fargo analysts said. The notion that Clearwire might gain from the demise of LightSquared has been evident for weeks, Bernstein Research’s Craig Moffett said: “This just makes it official.” Everyone already knew the deal was over, he said: “It’s like putting the saber-toothed tiger on the endangered species list. It’s old news.” Carlisle said the company will have to revisit how it would deal with buildout milestones, but said the FCC will likely consider the lengthy interference issues upon review.

The Sprint decision “should be an event of default” under LightSquared’s loans, potentially leading to an investor-forced bankruptcy filing, said Farrar. It remains unclear that investors would seek to push bankruptcy now and disrupt the current regulatory strategy, he said. LightSquared has likely pulled back hard on spending and will regain some money from Sprint, he said. The longer the company waits for a bankruptcy filing, “the more difficult it will be to get the money back,” said Farrar. Carlisle declined to discuss future financial strategy. He said he didn’t know of any wholesale agreements that have been canceled as a result of LightSquared’s difficulties.