Stephen Foley: Block on LightSquared seems the right decision


US Outlook: Philip Falcone and the other investors behind LightSquared, an ambitious plan to build a nationwide wireless broadband network in the US, are foaming at the mouth with fury at having their plan blocked by regulators.

They are throwing out accusations of political bias and manipulation by lobbyists, and they are lawyering up in anticipation of a court battle against the government. The truth doesn’t lie in their conspiracy theories, though. The Federal Communications Commission did the right thing.

I will confess to pangs of sympathy for Mr Falcone, a self-made billionaire who became a star of the hedge fund industry thanks to his successful bets against the mortgage market before the credit crisis. He was early in identifying the need for more wireless broadband capacity. The phone networks here are already creaking, as video calling, movie streaming and other data-intensive services take off. LightSquared, which has acquired rights to chunks of the radio spectrum, was proposing to build something that would be good for consumers and vital for innovation, as well as severely lucrative for its backers. It doesn’t seem especially fair that the plan has been scuppered because existing GPS services can’t stick to their own bit of the spectrum.

But practicality trumps fairness. The trouble is that GPS services use adjacent bits of the spectrum and would be disrupted by its service. Weak GPS satellite signals require a big scoop, so receivers are straying into LightSquared’s territory. Some of these GPS services are critical to aviation and the Pentagon; others are the basis of existing multi-billion dollar industries.

Only government regulation can make sense of the noise and prevent chaos, and the FCC had to weight the greater good. LightSquared argued the GPS industry should be forced to invest in technical fixes so as to stay within their spectrum. The FCC ruled that the proposed technical fixes were impractical, so it withdrew the provisional approval it gave to LightSquared.

My own view is that it is not only the science that is on the FCC’s side. Even if a fix were technically feasible, the FCC would still be within its rights to favour a well-established, highly-profitable, widely-used and security-critical industry over an unproven start-up. Spectrum is finite but not in short supply, and there are other options for improving wireless internet in the US. A day after the Commission’s decision, Congress approved a plan to re-auction areas of the spectrum currently being under-utilised by broadcasters.

For Mr Falcone this is all a terrible disaster. His fund, Harbinger Capital, has more than half its assets in LightSquared and last night we learned that outside investors are suing him for what they called a “reckless” all-in bet.

Foaming now about how the FCC has ignored “the rule of law” isn’t true and isn’t going to help.