WASHINGTON U.S. communications regulators dealt a severe blow on Tuesday to LightSquared's plans to establish a high-speed wireless network, proposing to withdraw authority for the land-based portion after government experts said it would interfere with the GPS system.
The Federal Communications Commission (FCC) said it proposed to suspend indefinitely LightSquared's authority to transition its satellite spectrum to ground-based use.
The National Telecommunications and Information Administration (NTIA), which manages military and government spectrum use, said on Tuesday that LightSquared's planned network would interfere with the global positioning system and there was no practical way to immediately solve the problem.
In a letter to the FCC, the NTIA said its finding was based on testing and analyses, as well as talks with LightSquared.
"If they can't develop terrestrial broadband services, then they have to go back to the drawing board," said Roe Equity Research analyst Kevin Roe.
Roe said LightSquared was not viable with only satellite services given the money already spent and debt incurred to start its ground network. He said he would not be surprised if the company challenged the FCC ruling in court.
LightSquared has said the NTIA's assessment of its planned network relied on flawed conclusions but was not immediately available to respond to the FCC's action.
LightSquared intended to invest $14 billion over the next eight years to build its network, which would sell wholesale wireless services to companies which would then resell the service under their own brand names.
But government testing found that the land-based portion of the network would overpower the weaker signals received by military and civilian GPS devices that serve purposes ranging from guiding weapons to planting crops.
LightSquared has argued that any interference is a result of poorly designed GPS receivers that GPS manufacturers should be obliged to fix.
It spent more than $1 million on lobbying efforts in Washington to try to gain approval for its wireless network, but was engaged in an uphill battle as opponents including companies such as Deere & Co, Delta Airlines and Trimble Navigation Ltd pointed to safety and national security risks associated with interference to GPS.
Hedge fund manager Philip Falcone has made a huge bet on the startup wireless broadband company, sinking more than $3 billion from his Harbinger Capital Partners hedge fund into LightSquared.
Falcone told investors that his Harbinger Capital Partners lost 46.6 percent last year after he dramatically marked down the value of the LightSquared holdings in the fund, an investor familiar with the matter said earlier in the month. A spokesman for Falcone confirmed the losses.
LightSquared has said previously it has just several quarters worth of cash left and its network partner, Sprint Nextel, had given it a mid-March deadline for FCC approval.
"With LightSquared set to run out of money in the near future, it must now consider whether to file for bankruptcy and preserve its resources for the inevitable litigation fights, or continue pretending that all of its problems can be overcome while its cash drains away," said Tim Farrar, an independent satellite industry analyst.
(Reporting By Jasmin Melvin; Additional reporting by Sinead Carew in New York; Editing by Tim Dobbyn and Michael Perry)