Falcone's Plan B: Swapping Airwaves

LightSquared Inc. may seek to exchange its wireless airwave licenses for similar ones operated by the U.S. Department of Defense in a last-ditch effort to revive its mobile broadband service, according to people familiar with the company's plans.
The possible strategy shift comes a day after the Federal Communications Commission said it wouldn't allow LightSquared to operate its network because of interference concerns.
LightSquared had been criticized by the Defense Department, legislators and makers of farm equipment and Global Positioning System devices, who say its network signal operates too close to those used for GPS and could interfere.
In comparison, the Defense Department airwaves—used primarily for aircraft testing—operate on a frequency farther away from GPS signals making it less likely to cause any jamming, the people said.
Such an airwaves swap would be difficult—it's not clear the Defense Department would be interested in such an exchange and LightSquared would need to raise additional funds. The swap is among several options the company is considering in response to the FCC action on Tuesday, those people said.
Representatives from the Defense Department and FCC declined to comment.
In a statement on Wednesday, LightSquared Chief Executive Sanjiv Ahuja vowed to work towards finding a solution to the FCC's opposition, noting the company had already spent $4 billion on building its network. "The government decided to choose winners and losers," Mr. Ahuja said.
LightSquared has engaged boutique investment bank Moelis & Co. as a restructuring adviser, according to a person familiar with the matter. The FCC ruling comes at a difficult time for the company as it faces an April interest payment on $1.6 billion of secured loans and several hundred million dollars of subordinated debt due in July.
The move to swap its spectrum would represent a change in strategy for LightSquared. The company has said it is the victim of incomplete testing and that its proposed network would create thousands of jobs and ease congestion on carriers' services as more Americans buy data-hungry smartphones and tablet computers.
The FCC granted LightSquared a waiver in early 2011 to operate satellite wireless airwaves, or spectrum, for a land-based nationwide network that would reach 260 million Americans by the end of 2015.
LightSquared hoped to compete with AT&T Inc., Verizon Wireless and others in selling its spectrum wholesale and had agreements with Best Buy Co., Leap Wireless International Inc. and other companies.
LightSquared may lose an important partner in Sprint Nextel Corp. if it cannot get FCC approval to operate by mid-March. The two companies reached a 15-year agreement to share network resources and construction expenses that would have saved LightSquared as much as $13 billion through 2020.
Sprint had recently given LightSquared two extensions to get approval from the FCC. Sprint may have to return $65 million in prepayments to LightSquared if it fails to meet its latest deadline.
Investor Philip Falcone also has invested billions of his Harbinger Capital Partners hedge fund's money in the venture.
The matter came to a head on Tuesday when the National Telecommunications and Information Administration, a unit of the Commerce Department, sent a letter to the FCC saying it could find no way to lessen GPS interference from LightSquared. Shortly afterward, the FCC said it would recommend against allowing LightSquared to roll out its network.
LightSquared said on Tuesday that it "profoundly disagrees" with testing that showed its network caused GPS interference. LightSquared has argued that the GPS industry should have anticipated any interference and should be required to pay for filters that would block out the company's signal.
A Commerce Department spokeswoman said she had no immediate comment.
Harbinger Capital reported the value of its largest fund dipped 47% last year because of a write-down of the value of the wireless company. LightSquared has said it has enough cash on hand to operate for several quarters, without providing specifics.
Investors, who were awaiting information from Harbinger, questioned whether further write-downs on LightSquared would be necessary and what other options the firm might explore.
The hedge fund has set up a 10 a.m. call with investors on Friday, but hasn't provided extensive communications to investors in light of the FCC decision, in part because it is still trying to decipher what the ruling means, a person familiar with the matter said.
The company faces additional competition from Dish Network Corp., which has a pending application with the FCC to also operate satellite spectrum for a terrestrial wireless network. Dish has said it expects the FCC to rule by the end of March, but that it would take several years to build out a network after approval.


source