LightSquared, the wholesale wireless startup backed by Phil Falcone’s Harbinger Capital Partners, finds itself at a critical crossroads (click here for more information). Regulatory, financial and potentially legal headwinds facing LightSquared early in the new year remain strong and could prove especially difficult to navigate in coming months.

A U.S. government report on potential interference to global positioning system devices/systems from LightSquared’s planned national satellite/terrestrial 4G LTE wireless network is expected to be released in the near future. Preliminary indications suggest government findings may not put to rest concerns about possible LightSquared disruption to commercial and government GPS-based operations.

The lead-up to soon-to-be-released government findings on LightSquared GPS interference potential has not been especially promising for the company. The conference report accompanying a defense authorization bill signed by President Obama on Dec. 31, 2011, includes language directing the Federal Communications Commission to not only adhere to a licensing condition prohibiting LightSquared from launching commercial terrestrial operations until military-related interference concerns have been resolved, but also requires public comment on government test results and directs the agency to report back to Congress.

Even if the government report were to clear LightSquared to initiate wireless service, there remains a possibility of company operations being subsequently shut down if Department of Defense monitoring required by the newly enacted bill finds interference to military GPS signals. If government GPS interference testing produces a negative outcome for LightSquared, such a result in tandem with a mix of other risk factors could seriously undermine the ongoing viability of the startup.

Implications of a LightSquared Implosion

A LightSquared implosion could prompt the sale of some or all of the company’s assets. It is unclear whether LightSquared’s loss would be another wireless carrier’s gain if its L-band (1.5 GHz-1.6 GHz) mobile satellite service (MSS) spectrum is deemed damaged goods by virtue of a continued GPS interference overhang. However, the possibility exists that another player employing an alternative network architecture (one lacking an interference threat) could extract value from foregone LightSquared spectrum.

Perhaps potentially more significant is how a LightSquared failure, combined with other factors (including uncertain prospects for broadcast spectrum repurposing), could affect overarching spectrum dynamics in a wireless broadband market transitioning from a 3G to a 4G LTE technological platform.

Dish, seeking FCC approval to acquire S-band MSS spectrum (2 GHz) and exploit those frequencies for terrestrial-based 4G LTE use via waiver (a la LightSquared), could become all the more attractive to wireless carriers across the board. As such, Dish could be a tad less enticing to Verizon right now than to other carriers since Verizon is poised to acquire a meaningful amount of cable-controlled spectrum by SpectrumCo and Cox (click here for more information) and to swap airwaves with Leap Wireless.

While converting TV broadcast channels to mobile broadband spectrum has a strong surface appeal for providing relief to wireless carriers going forward, the legislative and regulatory processes for actually achieving that objective entail risk and uncertainty over a potentially prolonged timeframe.

Spectrum repurposing 1) still requires legislative action (possibly within context of congressional efforts to help pay for an extended payroll tax cut through incentive auctions); 2) would likely entail lengthy, controversial regulatory implementation if included in any approved legislation; and 3) possibly could yield less mobile broadband spectrum than anticipated if protections for broadcast licensees sought by key House Republicans are written into the measure.

Jeffrey Silva, Medley Global Advisors LLC, 202/434-0980

The Daily

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