Are Harbinger’s LTE Network Plans a Red Herring?

A New York-based private equity firm’s plans to build out an open nationwide 4G wireless network may simply be a facade aimed at pumping up the value of the spectrum held by its portfolio companies, according to several satellite industry analysts. Harbinger Capital Partners unveiled its LTE network plans last Friday as part of its bid for FCC approval to take over satellite company, SkyTerra. But I, and others, have remained skeptical that the network will ever come to fruition.

“I don’t think we’re going to see an LTE network built by Harbinger,” said John L. Stone, Jr., a director with Near Earth LLC, a boutique investment bank that has a specialty practice focused on satellites. Stone expects Harbinger’s moves with the FCC  to result in a sale of spectrum holdings rather than an open 4G network. However, as a condition of its takeover of SkyTerra, the FCC prohibited Harbinger from selling the spectrum to AT&T or Verizon or letting traffic from the nation’s two largest carriers comprise more than 25 percent of its traffic.

Tim Farrar, an analyst at TMF Associates, has similar doubts, surmising in a report published today that Harbinger may in fact be pleased by the objections to the FCC conditions associated with its SkyTerra deal that AT&T (s T) has filed. Farrar writes:

On the other hand, given that AT&T is challenging these conditions, it may conceivably be the case that Harbinger has given the FCC the rope to hang itself by: if the conditions are declared illegal, then it would presumably be much harder for the FCC to oppose a sale of the spectrum to AT&T (perhaps even before Harbinger launches commercial service). In the meantime, by declaring its intention to actually build the network, Harbinger has forced AT&T and Verizon to take ATC a lot more seriously than they have done in the last few years, and perhaps even to rethink whether they want to invest in ATC spectrum, something that the leading cellular operators have apparently dismissed on previous occasions.

Harbinger has access to 53 MHz of spectrum and the total spectrum in the MSS band where it has investments adds up to 90 MHz. That’s a significant chunk of the 500 MHz the FCC plans to free up as part of its National Broadband Plan — and the spectrum would be available today if those pesky conditions were removed. If nothing else, the FCC order and Harbinger’s plans have suddenly made the big carriers take notice of the value those airwaves may have — something that Harbinger no doubt is happy about.

Right now there are a lot of people throwing water on this deal, and few defending it on the record, which doesn’t inspire confidence. Perhaps Harbinger will release more information on its network partners, or the FCC will go on the record about how impossible it will be for Harbinger to flip its spectrum. Until then, I’m keeping my excitement in check.