Regulators Dim Lights on LightSquared

LightSquared's plans to bring more competition to the wireless game have been dealt a blow by federal regulators.

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Federal regulators have dealt a hammer blow to billionaire Philip Falcone’s plan to start a national competitor in the business of delivering wireless service.

The Federal Communications Commission ruled Tuesday that LightSquared Inc.’s planned national wireless network uses spectrum that would disrupt GPS navigation. GPS is used ubiquitously by planes, automobiles and boats, so protecting it became a higher priority than allowing more competition among wireless phone and data providers.

Not only is the ruling a blow to competition among wireless providers, its quite a hit to Falcone’s hedge fund, Harbinger Capital Partners, which has sunk about $3 billion into LightSquared.

As Scott Moritz and Olga Kharif write in Bloomberg Business Week:

The setback threatens to leave the industry with one fewer competitor, harming regulators’ attempts to spur rivalry and benefiting incumbents, such as AT&T Inc. and Clearwire Corp. LightSquared’s options include selling the spectrum, swapping it for better airwaves, suing the government and reducing costs to stay afloat until a solution is found, said Walt Piecyk, an analyst at BTIG LLC in New York.

“A reorganization might be considered in a situation like this,” Piecyk said. “If the spectrum is deemed unusable they have to cut costs as much as they possibly can, because it might be hard to raise additional capital.”

The Wall Street Journal’s Amy Schatz writes that LightSquared may be able to take on the government decision in court:

LightSquared says the problem is with GPS receivers, which are too sensitive and listen outside of the GPS boundaries. The company has threatened legal action against the government if it doesn't get approval. But it is unclear if the start-up has enough funding to withstand a protracted legal battle. LightSquared officials said last month that they had enough funding to last several quarters.