Telecom startup LightSquared is mounting a last-ditch effort to win U.S. regulatory approval for a new wireless network after being outmaneuvered by the GPS industry, which has cited numerous scenarios of interference problems that could interfere with planes and national security.
Billionaire hedge fund manager Philip Falcone has bet more than $3 billion of his Harbinger Capital Partners money on LightSquared (Reston, Va., USA), which in turn has spent more than $1 million on lobbying efforts in Washington to try to get approval to launch a new high-speed wireless network.
The company is staring down an end-of-the-month deadline for the government to give the green light, before partners start bolting and as its cash position gets more dire. LightSquared reported a $427 million net loss for the first nine months of 2011 and could run out of money in the second quarter of this year if it cannot raise additional capital and financing.
LightSquared's term loans were trading around 50 cents on the dollar in the secondary market, a sharp discount to their face value. The loans were fetching 90 cents on a dollar over the summer, but the price for the debt dropped sharply as concerns over the GPS problems magnified and investors began wondering about the company's ability to raise new money.
The collapse of LightSquared could prove disastrous for Falcone's hedge fund, as roughly half of Harbinger's assets are tied up in LightSquared. Harbinger spokesman Lew Phelps said the hedge fund "is focused entirely on working with LightSquared to obtain FCC approval."
LightSquared last month hired Washington's top-earning lobbying firm, Patton Boggs, to join an already formidable force of 15 lobbying firms that includes Gephardt Group, K&L Gates, Dickstein Schapiro and Podesta Group. The company's lobbying expenditures reached $1.24 million as of October 31, compared with just $265,000 in 2010, according to data from the Center for Responsive Politics.
But it is a long shot, analysts said, for LightSquared to overcome the scare tactics effectively sold to lawmakers by the GPS industry, backed by big names such as Deere & Co, Delta Airlines and Trimble Navigation Ltd. They contend that LightSquared's network would overpower the weaker signals received by military and civilian global positioning system devices that serve purposes ranging from guiding weapons to planting crops.
Those lawmakers hold considerable sway with the U.S. Federal Communications Commission (FCC), which has dragged its feet in approving the deployment of LightSquared's high-speed wireless broadband services.
"Right now, I see absolutely no way for LightSquared to get political support. In an election year, I don't think there's a Democrat or Republican that will go within 1,000 miles of LightSquared because of all the fear tactics that have been employed," said former FCC chief engineer Ed Thomas, who joked that he still had scars from his dealings with the GPS industry while at the agency.
LightSquared and its lobbyists have become increasingly frustrated with the tactics of the GPS industry. They point to testing that has shown that the interference is not a result of LightSquared's signal bleeding into the GPS frequencies, but instead is caused by GPS receivers looking into LightSquared's airwaves.
LightSquared contends that GPS manufacturers knew at least six years ago that their devices were picking up LightSquared's spectrum.
"All they had to do was put one of these filters in, an almost insignificant change to their design, and we wouldn't be where we are today," said Jeff Carlisle, LightSquared's executive vice president of regulatory affairs and public policy.
But Jim Kirkland, vice president and general counsel of Trimble and a founding member of the Coalition to Save Our GPS , said "the suggestion that GPS manufacturers should have designed their equipment to accommodate a prohibited spectrum use is completely meritless."
Akin Gump Strauss Hauer & Feld, which ranks second among Washington's top earning lobbying firms, is leading the GPS coalition's government relations effort against LightSquared. Trimble shelled out $620,000 to the firm in the first three quarters of 2011 to lobby on GPS interference issues.
LightSquared also contends that the GPS community has created a hyper-political rhetoric that has led to accusations of campaign donations being used as leverage for meetings with senior White House aides and reports that senior administration officials were pressured to change their congressional testimony to look more favorably on the wireless venture.
"The other side has spun this up into this crazy, baseless accusation of political favoritism and radical change by the FCC, and it's nothing of the sort," said Mark Paoletta, a Dickstein Shapiro lobbyist working with LightSquared.
LightSquared has a vision to roll out a national network that would use satellites and land-based signals to reach roughly 260 million people. It is a private-sector venture that could help the Obama administration's goal of extending affordable broadband services to more Americans. It also could help technology companies who are facing a spectrum crunch. LightSquared intends to sell wholesale wireless services to companies which would then resell the service under their own brand names.
LightSquared plans to share network infrastructure with Sprint Nextel Corp (Overland Park, Kan., USA) and agreed to pay Sprint $9 billion to build out LightSquared's 4G network. The agreement is contingent on LightSquared getting regulatory clearance by the end of January.
That will be a tough task. The FCC has said LightSquared must address all interference and safety issues before it signs off on the company deploying its network. And due to effective lobbying by the GPS industry, Congress recently passed legislation that restricts the FCC from giving its approval until the U.S. Defense Department is satisfied that the interference issues are resolved. The FCC had no comment on the firm's most recent filing urging approval.
(Reporting By Jasmin Melvin; Editing by Tim Dobbyn)