Large internet company, LightSquared, has been seeking to establish a nationwide 4G network to provide wholesale network capacity to wireless communication service providers, cable operators, device manufacturers, and content providers. However, the FCC ruled last week that LightSquared would not be able to move ahead with the commercial network it had proposed, based on the FCC’s conclusion that the proposed system would interfere with GPS signals. The FCC suggested “indefinitely suspending” the company’s authority to transmit land-based signals and scrapping the conditional waiver that enabled LightSquared’s business model.
The Wall Street Journal reports that the LightSquared is now looking to its lawyers to overcome the FCC’s decisions.
The WSJ reported:
LightSquared Looks to Lawyers
Philip Falcone, the money manager who has staked his hedge fund on wireless network start-up LightSquared Inc., has hired lawyers to map out a strategy to overcome a regulator’s decision blocking the network’s launch.
Hedge funds that own some of LightSquared’s $1.6 billion of loans have also sought advice on possible litigation.
WSJ law reporter Steve Eder visits Mean Street with the latest on investor Philip Falcone, whose Harbinger Capital Partners hedge fund invested billions in LightSquared. The wireless start-up’s plan for a nationwide wireless network was rejected by the FCC this week. Photo: Reuters.
The lawyers are investigating the merits of a potential suit against the Federal Communications Commission, which this week rejected LightSquared’s plan for a broadband network, and the Global Positioning System industry. GPS companies and Defense Department officials have argued that LightSquared’s signal could interfere with their networks.
Mr. Falcone, who runs Harbinger Capital Partners LLC, is betting that telephone companies will face shortages in broadband capacity in the future, forcing them to pay providers like LightSquared a premium to use their networks. But if the recent FCC decision prevents LightSquared from launching operations, the value of investment may boil down to the strength of the company’s legal claims.
While LightSquared could try to sell its assets, buyers are unlikely to bite while the interference issue remains unresolved, said Lance Vitanza, senior telecom analyst at brokerage firm CRT Capital Group. Absent a sale, “this becomes a big litigation play against the government,” he said.
Mr. Falcone has employed Kirkland & Ellis LLP for litigation advice and Latham & Watkins LLP for counsel on regulatory issues, people familiar with the matter said. LightSquared has also engaged boutique investment bank Moelis & Co., whose founder, Ken Moelis, steered wireles- network operator Nextwave Personal Communications Inc. through a successful legal challenge against the FCC in 2003.
Loan holders have approached Andrew Lipman, a lawyer at Bingham McCutchen LLC specializing in FCC policy, to investigate how they might overcome regulatory obstacles, Mr. Lipman said. Investors in the debt include Carl Icahn’sIcahn Associates Corp., David Tepper’sAppaloosa Management LP, Andrew Beal’sBeal Bank and Providence Equity Partners, according to people familiar with the matter.
The primary objective of any lawsuit would likely be to force a technical fix to the GPS interference, either by allowing LightSquared to swap its wireless airwave license for a different bandwidth or by forcing GPS operators to use filters to block LightSquared’s signals, bankers and investors said.
To be sure, tackling the FCC in court will be difficult given intense political scrutiny of the controversy, said Owen Kurtin, an attorney specializing in commercial and regulatory law in the telecommunications industry.
The Defense Department and makers of farm equipment and GPS devices have lobbied to block LightSquared from operating, while efforts by Mr. Falcone’s emissaries to get White House help has drawn scrutiny from Republican politicians. Mr. Falcone, a registered Republican, has made donations to both Republicans and Democrats.
“It seems to me that for investors to make a case against the FCC and the GPS industry is a very long stretch,” Mr. Kurtin said.
As the likelihood of a court battle increases, some of LightSquared’s lenders have sold their debt on the open market, analysts and traders said. The market price of LightSquared’s loans fell as much as 25% during the worst of the selling, trading at 34 cents on the dollar, before rebounding to 39 cents, a trader said.
The distressed investors that bought into the loans have approached Mr. Falcone about a potential restructuring of the company, said a person familiar with the matter. Given Mr. Falcone’s heavy investment in LightSquared—over $2.9 billion through his hedge fund Harbinger Capital—the lenders are focused on a negotiated settlement, the person said.
LightSquared declined to comment. Kirkland & Ellis and Latham & Watkins didn’t respond to requests for comment.
The GPS industry’s lobbying group declined to comment on the lawsuit threat. The FCC declined to comment.
