LightSquared Spectrum Facing Hurdles Amid Harbinger Lawsuits, Bankruptcy, Say Spectrum Experts

The standard metric for determining the value of spectrum is “dollars per MHz per person,” said J.H. Snider, president of iSolon.org. If a company operates in a band where consumers already have equipment and the spectrum can be accessed by millions of people, either in a TV or radio band, “it’s going to be much more valuable than one that needs new equipment,” he said: Otherwise, “it can take many years to recoup your investment."

The value is “circumstantial,” said Lawrence Behr, CEO of LBA Group, a consultant to the wireless industry. “What’s a good value today may be totally out of the ballpark a year from now because of other impacts like the business climate.” For LightSquared, a major valuation concern is how it can be used, he said. “Your smartphones are getting loaded up with frequency slices that require different transmission than the antenna characteristics.” It’s very difficult to create a new chunk of spectrum in isolation like LightSquared’s, and “to get anybody to build a smartphone that incorporates it along with the other more conventional spectrum,” he said.

Spectrum that is costly to deploy can affect its value, said economist Coleman Bazelon of the Brattle Group, who has consulted for LightSquared, CEA, CTIA and others on spectrum issues. Factors such as equipment availability or having to use more expensive filters on a band might make it more costly to deploy, he said. “Whether a band is harmonized internationally will also affect the equipment ecosystem and the cost of equipment to deploy the spectrum.” Uncertainty also can have an impact, Bazelon said. “Investors require a return on investment, and the more uncertainty or risk there is associated with that investment, the higher the return they require."

"This is probably a pretty bad time to be introducing new spectrum,” Behr said, referring to the Sprint Nextel and Clearwire deal and sales among small carriers. In about five years, it’s likely that “all the carriers are fairly flush with spectrum and it’s all contiguous with established blocks,” he said. “To have a new chunk come into the act, they have to figure out something to do with it.” Backhaul, instead of consumer use, may be a short-term solution for LightSquared, he said. LightSquared had no comment.

Every year that the spectrum is not deployed is lost value, said Thomas Lenard, president of Technology Policy Institute. “It can produce no value for consumers if it’s just going to be sitting in the middle of regulatory proceedings for five years.” The bankruptcy problems for LightSquared “may have an impact on its ability to deploy the spectrum quickly,” he said. The FCC needs to work harder to get spectrum released, licensed and in service, he said.

The lawsuit from Harbinger Capital Partners, LightSquared’s investor, against Dish Network and its Chairman Charlie Ergen, and another complaint against entities in the GPS community are pending in the U.S. Bankruptcy Court in Manhattan (CD Aug 21 p22). Harbinger and its CEO Phil Falcone settled with the SEC for $18 million this month on illicit conduct charges. Those issues affect the company, but shouldn’t affect the spectrum’s underlying value, Bazelon said. “Restrictions on Falcone’s security activities aren’t going to affect the profitability of deploying a band of spectrum.” Falcone might think the GPS lawsuit “will spur some type of settlement with the GPS folks,” Snider said. Several GPS companies had no comment.

The GPS suit could be the most troubling, said Jeff Silva, an analyst with Medley Global Advisors. LightSquared has made progress with GPS manufacturers on its band plan modification, he said. That suit “has a potential to muddy the waters for LightSquared because it has spent some time trying to develop relationships with them going forward,” he said: “It could undermine some of the company’s efforts to get the regulatory approvals and technical assessments done.”

The FCC is seeking comment on potential interaction of LightSquared’s wireless devices with GPS devices, and initial comments are due Sept. 6 (CD Aug 22 p1). The wholesale satellite company’s plan to give up the 1545-1555 MHz band and use 1670-1680 MHz, which includes sharing spectrum with the National Oceanic Atmospheric Administration, is being tested on special temporary authority from the FCC. The STA was extended to Oct. 1 (CD July 23 p20).

While the commission wouldn’t be involved in the suits or the SEC issue, “certainly everyone there [at FCC] is very much aware of what’s going on, and that could certainly affect their political motivation in doing anything that they might be asked to do with that spectrum,” Behr said. The FCC likely doesn’t want to make the difficult decisions itself, Snider said. “If they can get the key players to come to an agreement and they can just sanction that agreement, that may be what’s involved."

The FCC must weigh LightSquared’s plan with Dish’s reported plan to pair its S-band spectrum with LightSquared’s spectrum, said Tim Farrar, independent MSS analyst. “If the FCC does nothing and doesn’t approve what Dish’s plan might be or what LightSquared is hoping for, then it’s very difficult to see how the spectrum is worth very much at all.” The SEC restrictions on Falcone raise “potential for backlash if you give stuff away to Harbinger and LightSquared,” said Farrar. It could cause “an unnecessary fight with Congress if the FCC were to do LightSquared any favors,” he added.

The spectrum ultimately should find a use whether it’s mobile broadband or not, Bazelon said. “I guess the hard question is what level of protection … in the long term is going to be afforded the GPS users and then, given that level of protection, what restrictions does that put on how that spectrum can be used?” There will be some useful way to deploy it, he said. “Nothing in the GPS debate changed the ability to use that spectrum for satellite phones.” At some point, it will be put to use, Snider said. “It’s just a matter of when.” It is “an incredibly valuable resource,” he added.,