It was just the kind of risk that attracted someone like Falcone. He was enjoying the frothy rewards of his landmark 2006 bet that subprime mortgages would default. His wager against conventional wisdom about the real estate market would catapult Harbinger’s value to a peak of $26 billion.
With that, the youngest of nine children from Chisholm, Minn., hit pay dirt. Falcone, with chin-length floppy hair, and his striking wife of equally humble beginnings were suddenly gossip column fodder. They famously paid $49 million for an Upper East Side town house previously owned by former Penthouse publisher Bob Giuccione.
Harvard-educated and ambitious, Falcone went after ever bigger deals, investing in an iron-ore mining company in Brazil. And in 2010, Harbinger took over SkyTerra, a troubled satellite firm with airwave licenses. SkyTerra had gained FCC permission in 2004 to became a major land-based network that could serve as many as 260 million customers. Harbinger had the money to turn that vision into a reality.
“Investing in spectrum is not for the faint of heart,” said Walter Piecyk, an analyst at BTIG Research. “It not only requires significant capital as a ticket of entry but also requires patience to wait for an inevitable larger buyer and in many cases more funding to satisfy buildout requirements. If that wasn’t enough, interested spectrum buyers must navigate the not so subtle hand of a perpetually changing leadership at regulatory agencies.”
In November 2010, LightSquared asked the FCC if it could add to the kinds of devices that would run on the network. It wanted to operate run-of-the-mill cellphones and tablets that didn’t require satellite services.
Within weeks, the FCC said yes — on the condition that any interference problems were worked out. That decision set off the massive battle with GPS makers including Trimble and John Deere, whose tractors and other precision equipment rely on sensitive location technology. They said the new plans turned any small concerns about interference into a major problem.
LightSquared has said the firm tried several times to negotiate technical fixes with GPS makers. Even so, opposition swelled. Sen. Charles Grassley (R-Iowa) launched an investigation of the FCC, demanding internal documents on what he called a fast-track waiver for LightSquared. Why, he and other lawmakers asked, did the agency in charge of communications technology support a multibillion-dollar idea without fully vetting the technical problems?
“The FCC didn’t do its homework,” said Roger Entner, founder of Recon Analytics, a telecom research and consulting firm. “In its eagerness to quickly create additional competition in the market, it didn’t recognize the potential interference and that this would blow up in its face.”
FCC Chairman Julius Genachowski, a former campaign bundler for Obama, rejected the request by Grassley, saying the lawmaker’s Senate judiciary subcommittee doesn’t oversee the agency. With that, Falcone’s LightSquared had become tangled in a political battle. Opponents in Congress even held up confirmation of two FCC nominees in protest.
The GPS industry demanded further review. In February, the Commerce Department said its own tests showed devices would crowd out some precision GPS technology used by the military and airlines. In February, the FCC said “there was no practical way to mitigate potential interference at this time.” It said it would “vacate” its permission granted one year earlier. It would go even further, suspending parts of a waiver given years earlier to run LightSquared as a terrestrial network.
Investors bailed. Weeks later, Sprint Nextel, a key partner, canceled its deal to build out a network with LightSquared. Debt holders called for Falcone to resign.
Now in bankruptcy, with its staff reduced by half, no chief executive and still no fix to the GPS issue, LightSquared has few options left.
Last week, LightSquared asked the FCC to swap its troubled airwaves for others. The company could sue the FCC, saying the agency improperly put key operating permissions on ice.
With his wealth and reputation on the line, Falcone is putting his head down for a long fight to somehow revive LightSquared.
As he put it: “One of the things I learned in hockey is that the game’s not over until the buzzer sounds at the end of the third period. And until that buzzer sounds, you keep on playing as hard as you can.”