LightSquared’s Broadband Rejection a Blow for Wireless Competition

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Jessica Rinaldi / Reuters

Hedge fund manager Phil Falcone is the majority owner of LightSquared.

The federal government’s rejection of LightSquared’s ambitious plan to launch a nationwide wireless network is a major setback for hedge fund manager Phil Falcone, who poured billions of dollars into the project. But it also deals a blow to the prospect of more competition in the broadband space, which could have meant more choices for consumers in a market dominated by a few major players.

The Federal Communications Commission announced Tuesday that it won’t let LightSquared begin operating its network after another federal agency, the National Telecommunications and Information Administration, said that the new network would interfere with GPS signals used to guide commercial aircraft, satellites and personal-navigation devices.

LightSquared was aiming to introduce a high-speed, next-generation wireless service that could compete with Verizon Wireless, AT&T and other incumbent providers. The plan had many supporters, including at the FCC, which has been pushing to free up more wireless spectrum to accommodate consumers’ rapidly growing appetite for streaming music, movies and video games, which eat up more bandwidth than traditional voice calls.

LightSquared, which has invested $4 billion in the project, had hoped to take advantage of this so-called “spectrum crunch” with a new option for as many as 260 million people. The firm would not have marketed the service itself, but rather would have provided wholesale access to third-parties like Best Buy, which was planning on selling broadband under its own brand.

(More: Will Google’s Insanely-Fast Kansas City Network Shame U.S. ISPs?)

It’s not surprising that LightSquared has cried foul at the FCC’s rejection. But it may have a legitimate point: Even federal regulators acknowledge that GPS devices pick up signals from outside their allotted spectrum — in this case, LightSquared signals, which operate on wireless spectrum directly adjacent to that used by GPS. In a blog post, Jeff Carlisle, the company top official for regulatory affairs, blasted the federal government for bowing to the GPS industry. “GPS in America has become ‘too big to fail,'” he wrote. “Like Wall Street, the manufacturers of GPS devices have spent years profiting off of vulnerable technology and are now seeking protection from the government instead of implementing the necessary reforms.”

LightSquared’s rejection is clearly a major setback for Falcone, a colorful character whose New York-based hedge fund, Harbinger Capital Partners, made billions after betting against sub-prime mortgages in the years prior to the financial meltdown. (The lavish lifestyle enjoyed by Falcone and his wife Lisa Marie was chronicled memorably in a Vanity Fair article last year.)

In fact, the bigger loser may actually be the public, which could have enjoyed scores of new wireless broadband options nationwide, instead of having to settle for the biggest legacy players like AT&T and Verizon Wireless. LightSquared had struck wholesale deals with many smaller, regionally-based companies eager to offer broadband — companies that would have been able to bring-much needed competition into the market, putting downward pressure on prices. “It is very unfortunate that the engineering studies did not find a clear way forward to bring much needed spectrum to the public on a wholesale basis,” Harold Feld, legal director for Public Knowledge, a DC-based consumer interest group, said in a statement.

Still, hope for more wireless competition may not be completely lost. One day after the FCC announced its decision, one of LightSquared’s wholesale partners, FreedomPop, which was launched by Skype co-founder Niklas Zennstrom, said it would team up with Clearwire, another upstart broadband company, to offer next-generation wireless service. Clearwires shares rose more than 5% Wednesday in the wake of the FCC LightSquared decision.