Falcone is out, but LightSquared’s 4G chances still slim

LightSquared’s lenders view the company’s CEO and principal financial backer Philip Falcone as the biggest threat to whatever remains of LightSquared’s chances to get its nationwide LTE network. To remove that threat, Falcone is removing himself as CEO, according to the Wall Street Journal.

LightSquared is set to default on its debt today, which would send the company into bankruptcy. Its lenders, which include activist investor Carl Icahn, appear willing to give LightSquared some breathing room, but their big condition was that Falcone must  go, even though his hedge fund Harbinger Capital owns 96 percent of the company’s equity.

Reuters reported that Icahn and LightSquared’s other bondholders feel that Falcone is a liability in the would-be carrier’s negotiations with the Federal Communications Commission to reinstate the waiver it needs to deploy its 4G network across the U.S. Without the waiver, LightSquared’s dreams of being a wholesale provider of cheap mobile broadband capacity would evaporate and it would be forced to remain a satellite provider.

The FCC originally granted LightSquared a terrestrial network waiver on the condition LightSquared’s network wouldn’t interfere with GPS devices, which use a nearby band, but mounting evidence that such interference would occur and increasing pressure from the GPS lobby, government agencies and even Congress led the FCC to yank that waiver, pending a public comment period. LightSquared’s remaining hope is to convince the FCC to reconsider its decision or talk the commission into granting alternate spectrum in a less controversial band.

Even with Falcone gone, neither option has much chance of succeeding. The FCC would face tremendous backlash if it approved any network that could potentially interfere with millions of commercial, industrial and government GPS devices. If the FCC gave LightSquared new spectrum, the government would essentially be bailing Falcone out of a bad financial bet, encouraging future operators to speculate on spectrum rather than deploying networks over it.