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LightSquared's bankruptcy is a cautionary tale

15.05.2012
After more than a year of active testing and debate over LightSquared's plan for a nationwide, wholesale 4G network, the now bankrupt company may end up as no more than a cautionary tale for mobile investors.

Industry observers say there are three things that might bring some value to LightSquared's main asset, a chunk of disputed radio spectrum: The company could swap the spectrum for another block, sell it to another carrier, or win a lawsuit against the U.S. Federal Communications Commission. But all three are unlikely, they said.

LightSquared on Monday, declaring assets of US$4.48 billion and debts of $2.29 billion. Lengthy negotiations with its creditors failed to produce an agreement on how to handle the debt. Philip Falcone, whose Harbinger Capital Partners owns most of LightSquared, said in a statement that declaring bankruptcy will give the company more time to gain regulatory approval for its network. In its bankruptcy filing on Monday, the company acknowledged that getting permission to build its network may take two years, a prediction some observers say is optimistic.

LightSquared and its predecessor companies had won approvals from the FCC to launch an LTE mobile data network using spectrum located next to the frequencies used by GPS. It planned to sell access to that network at wholesale to other carriers, alongside service on satellites that are already in the air. But a waiver that let the company sell those services separately was conditioned on resolving any interference that might affect GPS. Based on tests that showed continued interference, the FCC said in February it would .

With FCC approval, spectrum that had been awarded to LightSquared's predecessor companies without an auction would have been transformed into a much more valuable commodity, because cellular data is far more popular than the spectrum's original purpose, satellite mobile services. But as Falcone learned, not all mobile deals are a sure bet.

"I think it's a lesson for the investment community that there are a lot of technology and commercial considerations that come into these types of network deployments ... that are outside of the norm," said Tolaga Research analyst Phil Marshall. "You need to be quite conservative when looking at spectrum."