The writing appears to be on the wall for wireless start-up LightSquared, and it spells bankruptcy.
After launching with $5 billion in investor backing, the company’s ambitious attempt at a fifth nationwide cellular network appears to be running run out of time, Reuters reports. Hammered by unfavorable rulings from the Federal Communications Commission (FCC), Philip Falcone, founder of Harbinger Capital Partners — LightSquared’s majority owner — told Reuters that the company is “seriously considering” bankruptcy.
LightSquared hit a federal wall in February when the FCC and National Telecommunications & Information Administration (NTIA) determined that its network conflicted with GPS signals, CNNMoney said. Following the decision, CEO Sanjiv Ahuja resigned, and last month, Sprint-Nextel (NYSE:S) pulled out of a $9 billion deal with LightSquared, CNNMoney noted.
Building a cellular network is an enormously expensive gamble. However, LightSquared seemed to have a trump card: It held rights to a chunk of wireless spectrum. The company’s business plan revolved around building the network and letting other partners sell the cellular service run on it, CNNMoney said. This would have provided smartphone makers the chance to retail their own-branded cell service using LightSquared’s network, a serious challenge to dominant carriers like Verizon (NYSE:VZ) and AT&T (NYSE:T).
Initially, the plan attracted scores of partners like Best Buy (NYSE:BBY), Sprint Nextel and Leap Wireless (NASDAQ:LEAP), CNNMoney said. LightSquared decided to lower operating cost and service prices by maintaining only a 4G network. By eliminating the 2G and 3G service, LightSquared looked to charge $7 per gigabyte transmitted across its network, compared to $15 per gigabyte at Verizon and AT&T.
However, the company hit a big snag. The spectrum it controlled was licensed for satellites, which broadcast weak signals compared to ground-based communications. In order to use its network for cellphones, LightSquared needed a waiver from the FCC permitting stronger signals.
The FCC initially fast-tracked the project. But as pressure from industry players mounted, it ultimately shot down LightSquared’s waiver. “We were ready to put the shovel in the ground, but they pulled the rug out from under us,” Falcone told the Washington Post. He blamed the FCC’s decision on lobbyists who “have a tremendous amount of power, and I was shocked by how regulators responded to that pressure.”
Falcone told Reuters that LightSquared would continue to seek a waiver, but analysts cited by CNNMoney concluded that if it doesn’t get FCC permission by the end of the year, it will be forced to liquidate.