With LightSquared, Did the FCC Bet on the Wrong Horse?

LightSquared, the company trying to build a wholesale, 4G, wireless network using Long Term Evolution (LTE) technology, has secured a $586 million loan from J.P. Morgan. It also said it has five unnamed customers for the future network, and in January, the FCC granted it a waiver that allows it to rely far less on its satellite network and far more on a traditional terrestrial cellular network that Nokia Siemens Networks (s nok) (s si) is building for it.

LightSquared is trying to build a wholesale 4G data network using spectrum normally associated with satellite companies. A 2003 FCC decision allowed LightSquared’s predecessor company to attempt to build a dual-mode satellite and terrestrial network, provided most of the traffic went over the satellite network and all devices were capable of working on both networks. This proved to be huge hurdle, however, which is why the FCC waiver was so important. Having the ability to offer cellular-only-devices is a huge win that could change the game for LightSquared — but it still needs money, and ideally a partner, to help it offset the cost of building out a network.

On Wednesday afternoon, LightSquared was linked to Sprint (s s) for such a network deal, which may or may not prove to be any more real than previous rumors linking it to T-Mobile or Clearwire (s clwr). Basically, if a company needs spectrum, the press and their sources are happy to link LightSquared to some type of deal. But as time has passed and more debt is needed, LightSquared — which is backed by Harbinger Capital Partners — has fewer chances of making a revenue-generating spectrum sale that its backers had hoped for, and must forge ahead building a wireless business.

It may not be the horse that Harbinger founder Phil Falcone thought he purchased back in 2007 when he invested in a satellite business called Motient, which has evolved into the spectrum-holding entity known as LightSquared (it actually evolved into two companies — one of which is the now-bankrupt TerreStar, which is leasing spectrum to LightSquared), but it’s the horse he’s now backing. He managed to find a willing co-sponsor for this animal with the FCC, which is so desperate to push competition for wireless networks that it has waived requirements on a variety of issues.

But in doubling down on LightSquared with its latest waiver — which allows the planned network to dump the requirement that devices on the network must be capable of working on both the satellite and the terrestrial network — the FCC hacked off the NTIA and the Department of Defense. Both entities are worried that running a primarily terrestrial network in the satellite spectrum used by LightSquared will interfere with the GPS signals being sent in the spectrum band next door. Tell a consumer that LightSquared might break his GPS-containing smartphone or in-car navigation system and Harbinger and the FCC now have bet on a horse that millions of others could learn to hate.

How is it that the GPS interference issue came out of nowhere this late in the approval process? As part of the waiver, the FCC has called for a test for interference, with the plans for the test due Friday. The waiver and the subsequent tests seem likely to delay the required network buildout targets approved back in March by the FCC. Plus, there may be other delays on the network buildout side.

While LightSquared satellite has successfully launched and is operational, its terrestrial network seems a bit flakey. Nokia Siemens Networks is building out the tower network, but apparently expects most of its efforts to occur next year, according to this report out of Mobile World Congress. Since the LightSquared network is supposed to cover 9 million people by September and 100 million by the end of 2012, and tower siting should now take 5 months for new construction, one would expect NSN to have a lot of work to do this year. An NSN delay could confirm what sources have told me, which is that in two major cities in the U.S. contractors doing the tower permitting and siting work were ordered to stop their efforts.

NSN declined to comment when I asked about these rumors, and LightSquared has not returned any of my calls for comment. However, if LightSquared is talking to Sprint, which outsourced its current network operations to Ericsson (s eric) and is bidding out a new network modernization contract, then perhaps NSN’s playing it cool until it knows that LightSquared’s network plans with it are for real.

The FCC waiver is a huge win for LightSquared, and if LightSquared can really find a partner in Sprint or T-Mobile, perhaps the FCC’s bet on a competitive wireless network will pay off. Harbinger may not have started out planning to build out this network, but at this point that’s the race it looks like this horse will have to run.

Image courtesy of Flickr user loop_oh.

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