Spectrum Swap Best Option for LightSquared’s Salvation

By Wayne Rash  |  Posted 2012-05-15

LightSquared Files for Chapter 11 Bankruptcy in Bid to Buy Time

LightSquared tried the business world€™s version of a Hail Mary pass by filing for Chapter 11 bankruptcy protection from its creditors. According to a statement released by the company, LightSquared needs time to resolve regulatory issues that have plagued the company since it first received conditional approval from the FCC to operate a terrestrial data service on mobile satellite bands it purchased in a spectrum auction.

Prior to the bankruptcy filing, LightSquared€™s creditors had given it a series of one-week extensions during which intense negotiations with creditors took place, and in which the creditors reportedly requested that investor Philip Falcone, who through his hedge fund Harbinger Capital Partners controls the company, step aside. Instead, Falcone took the company into bankruptcy so that it could reorganize. According to the company€™s statement on the bankruptcy, the reorganization is one in which Falcone and the current LightSquared management team will remain in place and all other activities will continue as before.

While the restructuring appears to be theoretical at best, the company said that the real reason for the bankruptcy was to €œgive LightSquared sufficient breathing room to continue working through the regulatory process that will allow us to build our 4G wireless network,€ said Marc Montagner, interim COO and CFO. The details of the LightSquared bankruptcy are available from Kurtzman Carlson Consultants.

LightSquared€™s bankruptcy gambit comes as a surprise to few considering that the company€™s financial woes were well documented. In a series of last-gasp efforts, the company hired lobbyists in an effort to overturn the FCC decision, and wrangled with creditors to keep the company alive for increasingly futile efforts to stave off sale or shutdown of the company. The bankruptcy is simply one more means to keep hope alive.

The investors, meanwhile, are left holding the bag. LightSquared is currently hoping to convince the U.S. government to swap its existing spectrum for spectrum currently controlled by the Department of Defense. That spectrum is far enough away from GPS frequencies that LightSquared could operate its 4G LTE network without creating interference. So far, LightSquared efforts to swap its now useless spectrum for something else haven€™t been getting a lot of traction.

But that doesn€™t mean it won€™t work. The FCC is currently preparing a massive spectrum auction which the agency is advertising as a way to pay down the cost of payroll tax cuts. Some of the spectrum that the FCC wants to sell is what LightSquared could use to replace the mobile satellite spectrum it has now.

Spectrum Swap Best Option for LightSquared’s Salvation

One of LightSquared€™s options is to convince the FCC to sell its current spectrum holdings€“the bands next to GPS€“and give it the frequencies it wants that are too far from GPS to interfere.

Why would the FCC do this? There are two reasons. First, the original reason for the FCC€™s fast track of the LightSquared 4G data network was to provide a nationwide data network that could compete with Verizon Wireless and AT&T while giving smaller carriers a way to get access to LTE at a reasonable price. This was consistent with the Obama administration€™s stated goal of making broadband data available throughout the United States, especially in communities that are either underserved or which have no service at all.

The second reason is that the FCC has received a significant amount of criticism for the way it conducted the LightSquared process, from the conditional approval to the secretive testing conducted by the Air Force and National Telecommunications and Information Administration. Congress has already issued a request for documents in preparation for hearings. Worse, the potential for GPS interference from this part of the spectrum has been known to everyone, including the FCC, for years. Agreeing to a spectrum swap of some sort would defuse this criticism.

Of course, these are among the reasons why LightSquared filed for Chapter 11. As the company said, it didn€™t want its assets taken so that creditors could gain a quick profit. LightSquared intends to build and operate its network if it can find a path through the regulatory insanity.

Now the question comes down to one of time. Can LightSquared find a way to hang in there until the FCC comes through with a spectrum swap? Clearly this is ultimately what LightSquared would like. But whether the FCC has any motivation to hurry things along so LightSquared€™s dreams can be realized is another question. I suspect that deep down inside, the FCC commissioners who have been dealing with this mess just wish it would go away.

But that was then. The FCC has some new commissioners and this may also give LightSquared reason to hope. Unfortunately, things never seem to move quickly at the FCC, a fact that has been noted by any number of critics. It€™s hard to see the Commission suddenly speeding up now. But if anything, the world probably seems slightly brighter to LightSquared. Perhaps the FCC can see its way clear to get LightSquared a chunk of usable spectrum, while at the same time giving Verizon and AT&T some competition. 

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