Cue the “Mission Impossible” Theme for Harbinger’s LTE Plans

Harbinger Capital Partner’s bold plan to build out an open 4G wireless network has more moving parts than the latest OK Go video, and would require a minimum of $6 billion for the terrestrial and satellite infrastructure alone. Based on the expenses and the difficulty of building a cellular network, I’m skeptical that a competitive LTE network will come out of the plan.

Many of our commenters have pointed out the incredible expense involved in building out a terrestrial network, although Harbinger does already have requests for proposals out seeking bids. (If you have one, send it along, please). But beyond the difficulty (and $5 billion cost) of building out a terrestrial network that would cover 100 million people by the end of 2012, Harbinger would have to also fund a satellite expansion that could cost as much as $1 billion to build, launch and operate through 2013. And on top of all that it would have to fend off AT&T (s T) and Verizon’s (s vz) fury at the plan, launch devices with satellite and LTE chips and finally, sign up subscribers. In other words, cue the theme song for “Mission Impossible.”

Harbinger is attempting to build out this network using a block of the airwaves owned by SkyTerra and other companies that have spectrum in what’s known as the MSS band. Companies that own this spectrum want to use their holdings to build a combo satellite and terrestrial network, made possible by a 2003 FCC order that was enacted in the hopes of enabling satellite firms to offer some competition for wireless broadband. It’s been a tough slog for those firms, and the FCC order issued Friday night allowing Harbinger to take complete control over SkyTerra and consolidate some of the MSS spectrum was the first significant breakthrough since the original 2003 order.

While my initial reaction was that this was a mere financial play designed to help Harbinger package up a nice chunk of spectrum and flip it for hedge-fund like profits, there’s that RFP for a network buildout that Harbinger has circulated, and two sources have named Huawei as a potential source of equipment and possibly financing. Huawei has not returned repeated calls for comment.

There’s also a source in the FCC who is adamant that Harbinger can’t flip the spectrum without triggering another review by the agency. Plus Harbinger has to meet stringent conditions related to the buildout, which means that if it wanted to flip the spectrum, it would still have to meet its first milestoneĀ of covering 100 million people by Dec. 31, 2012. I’m not completely sold on the flip-proof nature of the FCC conditions after seeing the FCC offer repeated waivers to satellite companies having troubles meeting deadlines or requirements imposed by the original ATC order from 2003. And Harbinger has a track record of betting on spectrum, such as with its investment in Sprint (it holds 75 million shares that it values at $274.5 million ) and its investments in other satellite companies.

But even if we take Harbinger’s plan at face value, the private equity firm needs to raise about $6 billion to simply build out the network, with additional money dedicated to operating it. Maybe its execs can call Craig McCaw for advice.

SkyTerra, meanwhile, would need to launch two satellites, and Harbinger has made multiple arrangements with TerreStar and Inmarsat to pay them for leasing their spectrum. Tim Farrar, a satellite analyst with TMF Associates, says those costs total about $1 billion —$336 million to pay Inmarsat and adjust its equipment for the new combined network, $115 million a year to Inmarsat to lease its spectrum and $24 million as a payment to TerreStar. Harbinger holds a 31 percent stake in TerreStar.

These initial costs are daunting, but Harbinger has already invested at least $2 billion so far in TerreStar and SkyTerra, and is in a high-risk, high-reward business. But the risks are just as big as the costs. First, there’s the issue of finding a partner to build out the network. I, as well as Farrar, have fingered T-Mobile as the likeliest source because the FCC has forbidden AT&T and Verizon from gaining access to more than 25 percent of the MSS spectrum, and because Clearwire-Sprint has such large spectrum holdings. Although perhaps the Harbinger stake in Sprint could be an attempt to influence the cellular operator to provide access to its 3G network.

And that lack of a 3G network could be a big deal. Harbinger says it plans to build out its LTE network pretty quickly (it has to in order to meet the FCC milestones), but until it does, subscribers to its service will only have terrestrial coverage in major markets. Elsewhere they would presumably have satellite coverage. And when it comes to satellite broadband speeds, they’re pretty weak. Plus you can’t use satellite service inside buildings. So unless Harbinger finds a 3G partner, phones or data access in areas where there’s no terrestrial LTE network will suck.

Interestingly, TerreStar has a 3G partnership with AT&T, but I still doubt that model because the service is expensive, the device is clunky and the speeds are slow. However, that brings us to one of the final hurdles Harbinger will have to jump: the angry Bells. AT&T and Verizon both issued statements saying they found the FCC’s decision in this case troubling. I’m waiting to hear back from AT&T as to what TerreStar’s role in the Harbinger network might mean for its partnership with Ma Bell. TerreStar declined to comment, citing a confidentiality agreement it signed in January with the private equity firm.

Clearly there’s a lot going on here, but building out a new nationwide network has never been easy. We’ll see if Harbinger’s plan for faster mobile broadband with a satellite backup is the real thing or merely another fat pipe dream.

Image courtesy of NASA