Editorial: Regulatory Relief for LightSquared

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The U.S. Federal Communications Commission (FCC) ruling permitting LightSquared’s wholesale customers to sell terrestrial-only smartphones for use with its planned satellite-terrestrial mobile broadband network was appropriate provided the company can prove that the resulting changes will not cause interference to signals from the U.S. GPS satellite navigation system.

LightSquared, one of several ventures planning so-called hybrid networks in the United States, has much else to prove, including whether it can finance and deploy the ground-based part of its system on the schedule it has outlined and then build a successful business. But keeping GPS, which provides critical timing and navigation services — including safety-of-life functions — free from interference comes first and foremost.

Like its competitors, LightSquared was granted regulatory access to a wide swath of radio spectrum free of charge — by contrast, traditional cellular operators have had to pay hundreds of millions of dollars for spectrum at auction — on condition that it maintain a functioning satellite service. The idea was to encourage deployment of mobile broadband networks that allow first responders and other emergency workers to stay connected even if the terrestrial infrastructure is taken down in a disaster. As such, LightSquared’s original license stipulated that phones distributed for its service be either satellite only or dual mode.

But satellite-capable phones require large and somewhat unwieldy antennas, and this is considered an obstacle to winning market acceptance of a hybrid network service. LightSquared argued that without a waiver of the phone provision it might not be able to raise the financing necessary to fully deploy its network. The company has one satellite on orbit and plans a network of roughly 40,000 ground-based signal repeaters capable of reaching 100 million customers by the end of 2012 and 260 million by the close of 2016. The prospect of having more traffic on the ground-based portion of the network — whose ostensible purpose is to bring the service to areas where satellite signals cannot reach — raised the issue of potential GPS interference.

The waiver is the latest of several FCC moves easing the licensing requirements designed to ensure that satellite connectivity remains an integral part of hybrid broadband networks. These moves are bound to raise questions of fairness among traditional cellular operators.

But the FCC has levied other requirements on LightSquared to help ensure that its SkyTerra 1 satellite does not become mere window dressing for what for all intents and purposes is a terrestrial network. For example, LightSquared’s terrestrial-only phones must be priced on a par with the dual-use or satellite-only handsets, meaning the company likely will have to heavily subsidize customer purchases of the satellite-compatible gear in particular. This means those who want or need satellite connectivity — including public safety officials — should be able to have it at a reasonable cost, thus fulfilling the FCC’s rationale for making free spectrum available for hybrid networks.

Those who might doubt LightSquared’s seriousness about maintaining a satellite service need only to consider the company’s financial investments and commitments to date, including: $600 million to build, launch and insure SkyTerra 1; $50 million to pay Qualcomm to design dual-mode chipsets for LightSquared phones; and payments to mobile satellite services operator Inmarsat — a one-time commitment of more than $300 million plus annual payments for an indefinite period starting at $115 million and rising 3 percent per year — to make room in L-band frequencies for LightSquared’s service. This isn’t chump change by any standards.

Even with the FCC waiver, LightSquared has its work cut out for it. It remains unclear, for example, how it will raise the billions of dollars needed for its ground segment, which would be built by Nokia Siemens.

The financing question got murkier with the Feb. 1 announcement by satellite television provider Dish Network that it intends to buy DBSD, which holds S-band spectrum for a hybrid network but is in bankruptcy reorganization. Dish Network’s sister company, EchoStar Communications Corp., meanwhile, is positioned to become a controlling shareholder in TerreStar Networks when that S-band hopeful emerges from bankruptcy protection. In other words, both DBSD and TerreStar could exit bankruptcy under common ownership; merging the two would create a formidable competitor for the same investors that LightSquared is courting.

It’s no coincidence that Dish Network’s announcement followed closely on the heels of the FCC’s LightSquared waiver. Having agreed to permit LightSquared to offer terrestrial-only service, the FCC will be hard pressed not to grant similar concessions to other hybrid-network hopefuls, presumably increasing their attractiveness to investors. In fact, Globalstar, which operates an L-band network of low-orbiting satellites for mobile voice and data services, has since asked the FCC for relief from a similar license constraint. A DBSD-TerreStar combo able to offer a terrestrial-only option has a potential edge over LightSquared in terms of being able to attract investors because as an S-band operator it does not have to contend with the GPS interference issue.

It’s fair to say that the waiver boosts the likelihood that a satellite-terrestrial mobile broadband network will finally get deployed, and that’s a good thing. The FCC should be very wary, however, of weakening its satellite requirements further: Additional concessions will make it difficult for the agency to justify having given companies free access to spectrum that others have had to pay dearly for. If LightSquared or one of its competitors cannot make a go of it under the current rules — this assumes the recent waiver is granted to the other hopefuls — the FCC might have to devise a new strategy for making satellite-based mobile broadband available throughout the United States.