US 4G Network LightSquared Goes Bust

The satellite 4G wireless network startup LightSquared, backed by billionaire Philip Falcone and his Harbinger Capital Partners hedge fund, has filed for Chapter 11 bankruptcy.

The move, it said in a 14 May statement, will give it “breathing room” to resolve ongoing regulatory issues.

Regulatory Issue

The spectrum used by the network has repeatedly been found to interfere with GPS signals used by industries including aviation, law-enforcement and the military, preventing the network from receiving regulatory approval. On more than one occasion, LightSquared executives have called foul on the regulators overseeing the process, accusing them of rigging the results.

Bankruptcy, Falcone has said, would enable him to protect the company from creditors.

“The filing was necessary to preserve the value of our business and to ensure continued operations,” Marc Montagner, LightSquared’s interim co-chief operating officer and CFO, said in the statement.

“All of our efforts are focused on concluding this process in an efficient and successful manner,” Montagner added.

Montagner took on the role in February, after CEO Sanjiv Ahuja resigned, following a string of setbacks as the company adjusted the network and fought for its approval.

After Ahuja’s departure, the setbacks continued. Sprint, a patient partner banking on a successful LightSquared to supplement its own LTE efforts, twice extended the deadline by which it hoped the LightSquared network would receive federal approval.

However, in a January letter to the Federal Communications Commission (FCC), the National Space-based Positioning, Navigation and Timing Executive Committee wrote that it found LightSquared’s network to interfere with GPS signals to such a significant degree that the problem could not be corrected and additional testing would be pointless. In March, Sprint announced that it was returning $65 million (£40m) to LightSquared and nullifying the 15-year deal the pair had signed.

“Sprint has been and continues to be supportive of LightSquared’s business plans and appreciates the company’s efforts to find a resolution to the interference issues impacting its ability to offer service on the 1.6GHz spectrum,” Sprint said in a statement at the time, adding that it remained open to a deal should the company figure out a way to resolve the interference issues.

LightSquared Comeback

Falcone certainly seems hopeful, though investors are doubtful – and frustrated. According to Bloomberg News, at least one Harbinger investor is suing Harbinger for breach of contract, saying that Falcone didn’t say he was “going to turn Harbinger into a venture-capital fund.” The investor is afraid of losing $4 million (£2.5m) that she expected to be invested in things like corporate debt and restructuring.

Falcone has put a good deal of Harbinger’s and his own money into LightSquared, reports Bloomberg. While Falcone managed $26 billion (£16bn) at the height of his fortune in mid-2008, “Harbinger began suffering steep losses on mining and financial holdings as Mr. Falcone pushed more chips into his bid to turn the US telecommunications market on its head.”

By the end of last month, Bloomberg estimates that Harbinger was overseeing $3 billion (£1.8bn), with much of that intertwined with the fate of LightSquared.

“Today’s filing was not an option the company embraced quickly or easily, but it was necessary to protect LightSquared against creditors who were looking for a quick profit, as opposed to our goal to create long-term market competition, job creation and the promise of wireless connectivity for every American,” Falcone said in a 14 May statement.

The statement also said that LightSquared’s current management team will continue to lead the company through this next phase, and that all distribution partners and customers can continue to reply on the company to provide them with “mission-critical communications services.”

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