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LightSquared Poised to Build Nationwide 4G Network

The spectrum-rich company could vigorously compete with AT&T and Verizon in the market for 4G LTE wireless service.

Can a wholesale provider of 4G wireless services be the catalyst for a new era of competition and innovation in the U.S. wireless marketplace? LightSquared, a new telecom company formed by a hedge-fund billionaire around the guts of a satellite-communications concern, thinks so.

Though the company faces a long list of challenges, LightSquared owns a large, precious swath of licensed wireless spectrum and has the backing of billionaire hedge-fund investor Philip Falcone. These advantages may gives LightSquared enough credibility to attract the partners and investors it will need to succeed.

LightSquared hopes to make its money by selling fast wireless broadband to large established providers who will then resell it to consumers or to local or new providers (such as camera manufacturers, large retailers, and e-reader makers) that are looking for a way to add Internet access to their products without having to build a network to provide it.

The potential payoff for U.S. consumers is a number of new wireless devices and services from providers that are free to focus on innovation and marketing while LightSquared takes care of the network.

Right now, LightSquared faces the daunting task of raising billions of dollars to continue financing its network buildout. It must also assure potential customers that it will successfully do so.The company is increasing its visibility at forums such as the recent CTIA Wireless conference in Orlando, Florida, where CEO Sanjiv Ahuja delivered a splashy keynote address to announce LightSquared's first marquee-name deal--a tentative plan for big-box retailer Best Buy to resell LightSquared's network services when they become available.

Rumors of a possible tower-sharing deal with Sprint Nextel indicate that LightSquared may soon join forces with some much-needed collaborators. A potential public offering of stock could provide an infusion of cash as it strives to begin providing live wireless service before the end of 2011.

Roots in Satellite

In March of last year, Falcone's Harbinger Capital Partners completed a $262.5 million acquisition of SkyTerra Communications Inc., a provider of satellite communications services. Then, on July 10, 2010, LightSquared introduced itself and revealed its plans to offer wholesale wireless broadband services based on the Long Term Evolution (LTE) standard. To build out its nationwide network, LightSquared signed a deal with infrastructure provider Nokia Siemens Networks valued at $7 billion over eight years.

To run the company, Falcone chose telecom industry veteran Ahuja, who had served as CEO of the France-based Orange Group from 2004 through 2007. SkyTerra's major asset was its access to approximately 59MHz of wireless spectrum, most of it in the 1.6GHz frequency range--an ideal footprint for wireless services.

The original plan called for LightSquared to offer a combination satellite and wireless service, but in January the FCC granted LightSquared permission to use its spectrum for wireless-only services. This arrangement will be more affordable to LightSquared and any partners it may contract with, because devices that connect to the network will carry only cellular radios inside, instead of expensive satellite links.

The company still faces some regulatory opposition regarding claims that its network may interfere with weaker Global Positioning Satellite (GPS) transmissions in nearby bands, but LightSquared and the FCC are working together to ensure that GPS signals aren't compromised; more testing results are due this summer.

What Is LightSquared Doing Now?

LightSquared is currently conducting LTE network trials in Baltimore, Denver, Las Vegas, and Phoenix, and says that it plans to launch commercial service before the end of 2011. The company hopes that its network will reach 100 million potential customers before the end of 2012.

Though LightSquared has not announced any retail partner, market, or pricing scheme yet, the company says that devices including data cards, mobile wireless routers, and embedded modules (such as modem chips inside laptops) will account for the first wave of end-user access equipment. Smartphones designed to access the LightSquared network are scheduled for production in 2012, the company says.

In addition to the Best Buy deal, LightSquared has announced some lightly defined deals with Leap Wireless's Cricket brand (for unspecified 4G roaming coverage) and with rural service provider Open Range, in a partnership that is not yet fully defined. The Best Buy deal seems solid and impressive--Best Buy has agreed to resell LightSquared service under its Best Buy Connect brand--but trials won't begin until 2012, and no plans, devices, or markets have been announced.

More Funding Needed

On the funding side, LightSquared is likely to need multiple billions of dollars to build out its planned network, and it hasn't raised anywhere near that amount so far.

Establishing a nationwide 4G network is no easy feat in any case. WiMax operator Clearwire has spent at least $6 billion in developing its 71-market WiMax network, and it is struggling to find more funding.

One recent rumor suggested that LightSquared would sign a deal with Sprint to use Sprint's tower infrastructure to help with its buildout costs. Another rumor floated the prospect of a LightSquared IPO to raise money via the public markets. Both avenues are certainly possible, but each carries risks and conditions that may stall or complicate LightSquared's ambitious plans.

Being a wholesale operator, LightSquared will face tough but indirect competition in the marketplace from Verizon Wireless and AT&T, which is in the midst of a push to gain regulatory approval for acquiring T-Mobile USA, the country's fourth-largest wireless operator.

Another key question about LightSquared is whether device makers will support the network. If Best Buy decides to sell a phone that runs on LightSquared's network, a phone maker must agree to design and bake a LightSquared radio chip into the device.

If LightSquared successfully executes its planned network and service rollout, a new class of wireless carriers may get the opportunity to sell fast 4G LTE service and devices. These operators--which could never have built LTE networks of their own--may enter the market and create some much-needed competition for the AT&T-Verizon LTE duopoly, which may in turn help drive down the prices consumers will pay for 4G service.

In the end, LightSquared's spectrum is a rock-solid asset to fall back on. If the recent $39 billion bid by AT&T for T-Mobile--which AT&T says that it made chiefly to obtain more spectrum--is any indication, LightSquared could turn a profit simply by selling its airwaves to a bigger-budget bidder. But while that outcome might make some investors happy, it would also be a stark reminder of the difficulty of creating something revolutionary in the arena of mobile broadband services.

Paul Kapustka is editor and founder of Sidecut Reports, an independent research firm that specializes in wireless technologies.


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