It’s Not Looking Good for LightSquared’s Planned LTE Network

A plan backed by a private equity firm to bring a nationwide wholesale Long Term Evolution network to the U.S. appears to be in trouble. LightSquared, which is funded by Harbinger Capital, a private equity firm, has a troubled financial backer and may be losing ground in Washington as it seeks a way around some regulations, making its combined satellite and terrestrial LTE network an even long shot than before.

Yesterday, Reuters (s TRI) reported employees at Harbinger Capital are departing on the heels of investors in the fund pulling out their money and shrinking the asset base. The Reuters story says Harbinger has tied up 40 percent of its assets in LightSquared, and its investors are nervous. Harbinger’s troubles might not be noteworthy, except that LightSquared will undoubtedly need more cash, and it may not be able to get it from its primary backer. The shrinking funds and employee departures also indicate worry over LightSquared, Harbinger’s biggest investment.

Those doubters are smart. LightSquared, which must use both terrestrial towers and satellites in its network, has experienced some setbacks with its satellite launch, including difficulty finding carrier partners and a poorly-reviewed, dual-mode, satellite and terrestrial handset. The dual-mode nature of the network is due to the spectrum that LightSquared both owns and leases from other satellite providers. Those airwaves are burdened with some FCC restrictions that require any network using satellite handsets to have both a satellite and terrestrial network component. I’ve explained why this is so burdensome: Satellites are expensive, and their data rates are slow while the handsets are generally clunkier and pricey, but Harbinger was optimistic. The FCC is too, but mostly because its plan for better broadband in the U.S. and more competition is resting on mobile broadband access for all.

To get around some of the difficulties, LightSquared said in a November filing to the FCC that it would provide 500 kilobytes of satellite capacity for every gigabyte of terrestrial capacity (PDF), which essentially means it would send less than 1/100th of a percent of its traffic over the satellite network. LightSquared hopes to convince the FCC that the traffic split still means it’s providing a dual-network service, and squares it away with the constraints attached to its spectrum.

Meanwhile, the FCC is trying to figure out how to get the MSS band owned by satellite providers to carry data traffic without drawing the ire of carriers who have opposed the FCC’s past attempts to create competition for them in the MSS band. The agency could soon vote on rules that allow satellite providers to lease their existing spectrum in the secondary market and may allow LightSquared to sign up customers who would only use the terrestrial network. A report from last week issued by investment research firm Stifel Nicolaus isn’t optimistic that this will help. It states:

We believe the FCC may soon move forward on two proceedings to provide additional flexibility for wireless broadband use of the mobile satellite (MSS) spectrum. But once again we caution investors that we do not see these steps as sufficient to free up the spectrum for stand-alone broadband wireless service in the spectrum in any of the three MSS bands currently held by Lightsquared, Inmarsat (LSE: ISAT), Globalstar (GSAT), Iridium (IRDM), TerreStar (TSTR), and ICO/DBSD (ICOG). Although it is possible the FCC may take some additional steps toward relaxing the satellite gating criteria in one of these orders, we continue to think it is more likely the agency will see how the run for incentive auction legislation goes first, or respond to a deal that is brought to the agency.

The FCC may approve LightSquared’s plan, although the National Telecommunications and Information Authority on Wednesday demanded that the FCC conduct an interference test first, which would delay things to a point where LightSquared couldn’t meet commitments to cover 9 million people by third quarter of this year, which was part of an FCC approval process for Harbinger to back LightSquared, despite being located outside the U.S.

In short, LightSquared still needs money, and it needs help from the FCC to bring its nationwide network to fruition, but both of those things may be hard to come by given the FCC’s political position after implementing network neutrality, as well as Harbinger’s financial position.

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