5 Lessons From LightSquared’s Failure

Tomorrow’s technology triumphs are forged in the wilds of innovation, launched with PR fanfare and bankrolled by Wall Street’s finance wizards. But even then, great dreams can meet an early end — dashed to pieces on the rocks of Washington. And when that happens, investors can be left bleeding.

That’s a lesson aspiring broadband wireless wholesaler LightSquared — and hedge fund star Phil Falcone’s Harbinger Capital Partners — learned the hard way. It’s also a lesson for other companies, particularly publicly held technology firms, in what not to do when dealing with lawmakers and regulators.

LightSquared filed for bankruptcy earlier this month after the Federal Communications Commission revoked its waiver to launch its novel broadband wireless network and Sprint (NYSE:S) terminated its contract to build out and license the effort.

The privately held startup, which also had deals with Nokia Siemens Networks, Best Buy (NYSE:BBY), Airspan Networks (PINK:AIRO) and others, had planned to launch a revolutionary wholesale hybrid 4G-LTE network that combined satellites with 40,000 high-powered, earth-based transmitters. The network could have been able to deliver broadband wireless services for about half the cost of conventional networks.

The dream started well: In 2010, the FCC granted LightSquared a conditional waiver to use a large block of radio frequency spectrum in the L-Band for a terrestrial-only service — as long as the powerful, ground-based transmitters did not interfere with adjacent GPS signals.

But as it turned out, government tests a year later found that the transmitters did interfere with GPS signals — and flight-safety equipment on commercial aircraft. By that time, the company was pretty far along in the process. When LightSquared couldn’t resolve the interference problem to the government’s satisfaction, the FCC pulled the plug on its license.

On the surface, LightSquared’s demise seems to be a simple failure of its technology to make the grade. But in Washington, Nobel literature laureate Thomas Mann’s words ring particularly true: “Everything is politics.” Here are five lessons other companies should learn to avoid the invisible rip currents that pulled LightSquared under:

Broad-Based Alliances Are As Important As Tech Genius

Official Washington takes particular delight in humbling brilliant tech chiefs, as Microsoft’s (NASDAQ:MSFT) Bill Gates, Google’s (NASDAQ:GOOG) Larry Page and others have discovered over the years.

Apple’s (NASDAQ:AAPL) Steve Jobs was never one to cozy up to lawmakers, but his successor, Tim Cook, did a meet-and-greet on Capitol Hill last week. Cook’s social courtesy is timely since the Justice Department is mulling an antitrust lawsuit against Apple over alleged e-book price-fixing .

Although LightSquared received its initial approval over the objections of GPS users (Falcone has been a big contributor to the Democratic Party and is considered a “Friend of Obama”), the interference issue garnered the company powerful foes, including the Department of Defense (DOD) and the Federal Aviation Administration (FAA).

The two agencies have spent nearly $40 billion on GPS and will spend billions more in the coming years. That level of commitment buys a lot of opposition from high-powered federal constituencies. Combine that with predictions that the network could crash passenger planes and LightSquared suddenly faced a far tougher battle than it expected.

Only Amateurs Get Angry

When government tests last November found that the LightSquared network would cause “harmful interference to the majority of general-purpose GPS receivers” and flight-safety systems in commercial airliners, the company hit back, claiming the tests were “rigged” to deliver distorted data.

Smart politicians know how to put on a show of anger at opportune moments but seldom permit themselves the indulgence of venting genuine emotions. That’s because when you act in anger, you’re more vulnerable to advancing a bad position instead of stepping back to regroup and refocus your approach.

LightSquared’s outrage sacrificed the favor that its expensive lobbyists had earned with many government officials and burned a lot of bridges in the process.

Spinning Conspiracy Theories Never Helps

Then LightSquared Chairman and CEO Sanjiv Ahuja also alleged that government officials were in cahoots with the GPS industry and that they deliberately leaked test data to news organizations. They did so, he surmised, to “damage LightSquared’s reputation, spread false information in the marketplace and prejudice public opinion” before a complete analysis of the data could be submitted to the FCC and others.

Ahuja called for an investigation into the apparent leaks but wound up pulling the focus of Senator Charles Grassley (R-IA) instead. Grassley is now investigating whether the FCC’s initial LightSquared waiver is reminiscent of the Obama administration’s Solyndra debacle.

Railing against the government officials who will help decide your fate usually ends about as productively as throwing a fit at the DMV — you’ll likely wait longer, and your tantrum will likely be met with unexpected and unpleasant consequences.

Big Egos Threaten Business Opportunities

Hubris is as much of a third rail to companies working through the government regulatory process as Social Security once was to politicians: one wrong step and you’re dead.

The FCC denied LightSquared’s waiver in February, noting that the NTIA, which coordinates spectrum usage for federal agencies, concluded that there was “no practical way to mitigate potential interference at this time.” In response, the company fired back that the FCC’s action was “entirely unsupported by the law, science and FCC policy and precedent.”

To be fair, there was probably little to be accomplished by a conciliatory tone at that point. But unless you plan to go into another line of business, any future approvals or waivers will still go through the FCC — and Grandma’s timeless advice still applies: You catch more flies with honey than vinegar.

In the end, Ahuja stepped down from his position as CEO and Falcone, whose Harbinger Capital owns 96% of LightSquared, retreated from being the public face of the company late last month. Industry insiders speculated that LightSquared needed fresh faces for future relations with regulators.

Technology Success Doesn’t Exist in a Vacuum

LightSquared’s business objective — to launch a wholesale, 4G-LTE network that could slash in half the cost of delivering advanced wireless service — was conceptually brilliant. The technology was top-shelf as well, and it had an eager potential customer base.

But mission-critical GPS users had a vast base of sophisticated receivers that would be disrupted — perhaps catastrophically — by LightSquared’s interference. The FCC was at least equally to blame for issuing the waiver in the first place.

Political savvy alone would not have been sufficient to overcome the very real problems of interference, but perhaps it could have enabled a more conciliatory conclusion.

Everyone knew early on — at least in a general way — that LightSquared’s powerful ground-based transmitters, which were closer to receivers than GPS satellites, could interfere with sensitive receivers in high-profile verticals such as defense and commercial aviation. And when push came to shove, lawmakers and regulators would be forced to protect those interests.

Adopting a win-win approach to technology deployment is usually the most effective way to ensure success. And remember the outcome of the VCR war: Beta was the better technology, but VHS won the day.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.


Article printed from InvestorPlace Media, https://investorplace.com/2012/05/5-lessons-from-lightsquareds-failure/.

©2021 InvestorPlace Media, LLC