By Cecilia Kang
Washington Post Staff Writer
Tuesday, January 25, 2011; 11:00 PM
With a wave of new smartphones and tablet computers threatening to overwhelm wireless networks, the Federal Communications Commission is preparing to take another aggressive step to ease the growing capacity crunch.
On Wednesday, the agency is expected to grant a crucial waiver to Reston-based LightSquared that would pave the way for the firm to create a mobile network offering affordable broadband service based on satellite signals.
LightSquared, backed by billionaire Philip Falcone and his Harbinger Capital hedge fund, would be a rare new entrant to the U.S. wireless market, in which six out of 10 subscribers rely on broadband networks run by AT&T and Verizon Wireless.
FCC officials say they see LightSquared's proposal as a way to spur competition in the sector and have already granted an overall operating license to the firm.
"This is a promising opportunity to promote mobile broadband," said a FCC senior official, who spoke on the condition of anonymity because the waiver had not been formally approved. "LightSquared would be a new competitor and entrant into mobile broadband with new sources of capital and a new kind of business model that consumers find appealing."
If granted, the waiver would allow LightSquared to provide wireless broadband access without also having to sell satellite service. Such an exemption is key to LightSquared's ability to attract business customers who desire Web access but don't want to spend extra to lease satellite connections.
LightSquared's proposal, however, has met with opposition from Global Positioning System operators and federal agencies, who have argued that the firm's service could knock out their signals. The FCC says that Lightsquared would be expected to resolve any concerns about GPS interference.
"We are requiring that the process be completed to the FCC's satisfaction before LightSquared offers commercial service under the waiver," according to the FCC official.
If granted, the waiver would follow other recent FCC moves aimed at freeing airwaves.
Earlier this month, FCC Chairman Julius Genachowski said the agency would push to redeploy television broadcasters' unused airwaves to meet exploding wireless demand that has been fueled by the surging popularity of iPads, Droids and other must-have handhelds.
For now, LightSquared does not plan to offer service directly to consumers. Instead, it would lease space on its network to a range of companies, such as Apple and Wal-Mart, that might want to offer wireless devices under their own brands.
For some consumers, the plan could spell the end of long service contracts. And the FCC likes the idea of more options for wireless users, who have increasingly complained of billing confusion and penalties for leaving their contracts early. The plan could also enable gadgetmakers to break free from exclusive partnerships with the carriers that sell their devices.
"LightSquared has several important arguments in its favor," said Rebecca Arbogast, an analyst at Stifel Nicolaus. "We understand the [GPS] interference issues are real and complex, but may be resolvable."
LightSquared says filtering technology can be used to prevent interference with GPS service, and an FCC task force studying the issue is optimistic a resolution can be found.
"We have common interests here with the GPS community and want to work with them," said Jeff Carlyle, an executive vice president at LightSquared. "Devices on our network will have GPS technology, so why wouldn't we want to make sure it works?"
GPS providers, however, doubt that filtering technology will be enough and have presented studies and tests to the FCC that show of interference.
"Not only us, but other government agencies have strong concerns of interference potential," said F. Michael Swiek, executive director of the U.S. GPS Industry Council. "That should be enough caution to say let's take a deep breath, let's not rush down that road."
The departments of Defense, Transportation and Homeland Security have all voiced concerns about possible GPS disruptions, and earlier this month, Commerce Department assistant secretary Lawrence Strickling wrote to Genachowski, saying LightSquared's proposal needs more time to be examined.
Slowing down the process is exactly what the FCC and LightSquared want to avoid, analysts say. LightSquared told the FCC it would commit $20 million for interference tests.
The FCC's decision on the waiver comes at a critical time for LightSquared, Falcone and his backers at Harbinger, who together have sunk more than $2.9 billion into the venture.
Falcone, who made his fortune betting against subprime mortgages, has made wireless broadband his next big play. Over the past few years, he has acquired stakes in several satellite companies, including Reston-based SkyTerra, which he bought in March and renamed LightSquared.
With more than $1 billion in debt and a $7 billion commitment by Nokia to build the ground network, LightSquared has promised investors and regulators to deliver a network covering up to 100 million Americans by the end of 2012 and 260 million by 2016.