LightSquared Running Out of Cash, Time as Investor Sharks Circle

NEWS ANALYSIS: Beleaguered LightSquared suffers another hit as government testers find GPS interference and the company responds by claiming tests were rigged. Meanwhile, investor Carl Icahn closes in for the last big bite of the failing company.

You know that a company is failing when the investment sharks start to circle. The biggest shark of all, Carl Ichan, has purchased $300 million in LightSquared debt. If LightSquared runs out of money, which could happen as early as April, this would effectively give Ichan ownership of LightSquared's spectrum. Ichan, appearing to have no interest in using the spectrum, would presumably resell it to recover the value of the debt.

But a looming cash crisis may be the least of LightSquared's troubles. The latest round of tests by the National Space-based Positioning, Navigation and Timing Executive Committee demonstrated that the LightSquared Long Term Evolution (LTE system) would interfere with GPS to a significant level and that the interference could not be corrected.

The group said in a Jan. 13 letter to Lawrence Strickling at the Commerce Department that no further testing was recommended because no practical solutions appear to be available. The nine government agencies and departments that make up the committee were unanimous in that recommendation.

Sprint is about to pull the plug on LightSquared in a different way. Sprint had agreed to build LightSquared's terrestrial LTE network, provided the company got regulatory approval by the end of 2011. As that deadline approached, Sprint gave LightSquared another 30 days. This means that Sprint's deal with LightSquared is off in less than two weeks. There's no indication that Sprint will provide another extension.

LightSquared, meanwhile, has charged that the government tests were rigged, and that one of the people involved with testing had an interest in the outcome, creating a conflict of interest. The company also said the tests were invalid because some of the GPS receivers being tested were no longer in production.

LightSquared is, of course, grasping at straws. Every test, including some run by the company itself, showed interference with GPS, but LightSquared suggested that this interference could be overcome by adding filters to GPS receivers that were affected. What the company didn't say is how it planned to install such filters on virtually every GPS device in existence or who was going to pay for it.

LightSquared also performed no testing to show how those filters, if installed, might affect the operation of existing GPS receivers. Normally, radio frequency (RF) filters of the type suggested by LightSquared substantially attenuate the radio signals they pass. Given the very weak signal levels from GPS satellites, it's highly possible that the filters would render the GPS receivers as useless as the interference they're intended to prevent.

Now that LightSquared seems to have lost the last technical battle, it's ramped up the political battle. The company has launched a new round of ads touting its would-be service, and it's ratcheted up its lobbying effort.