Is Obama Betting on Another Iffy Company?

Is Obama Betting on Another Iffy Company?


What happens when crony capitalism isn’t enough? LightSquared had almost every advantage in their audacious plan to exploit the Obama administration’s goal of expanded broadband delivery -- key political connections in the White House, a curiously incurious FCC, and a hotshot hedge-fund wizard as its main financial backer. The only thing LightSquared lacked was a system that didn’t create havoc on the airwaves, but the company won’t let that stand in the way of their ambitions.

LightSquared’s CEO, Sanjiv Ahuja sent the Federal Communications Commission a petition this week demanding that the FCC grant approval for a waiver  that will allow a rollout of a terrestrial-based 4G network on frequencies allocated only for low-power satellite communications -- an action that would put lumps of coal into the stockings of millions of users of GPS technology this Christmas season.

LightSquared applied for a waiver to use their FCC-licensed satellite frequencies for this new purpose in order to exploit the Obama administration’s efforts to allow broadband Internet access to expand into rural areas. The waiver, if made permanent, would be worth billions of dollars to LightSquared, as it would sidestep the purchasing of new frequencies in an FCC auction. This cost savings already has commercial partners like Best Buy interested in the lower rates LightSquared could then offer for branded cell-phone services, as much as 50 percent less than existing carriers in the field.

In fact, LightSquared lobbyists have been pressuring state legislators in Minnesota (where Best Buy has its corporate headquarters) to demand FCC approval through Senators Amy Klobuchar and Al Franken, in part by stressing Best Buy’s partnership with LightSquared and the notion that “retail cell phone rates for LightSquared’s partners are expected to drop by 33-50 percent!” That cost savings comes from not having to buy new frequencies, which cost carriers like AT&T and Verizon tens of billions of dollars at auction, which makes the waiver critical to their business plan.

The terms of the waiver granted by the FCC in January of this year required LightSquared to demonstrate that it would not interfere with the GPS satellite services on adjacent frequencies. GPS devices detect low-power satellite signals, which means they have to be built with enough sensitivity to track signals from four or more satellites at once in order to get a position fix. Competing terrestrial (ground-based) broadcasts of almost any strength would interfere with this reception and make GPS receivers worthless.

Under the FCC’s spectrum allocation plan, LightSquared’s original satellite-communications service presented no risk to the long-established GPS service. In order to build their network, LightSquared has to install higher-powered transceivers on the same towers that other cell-phone providers use now. This prompted objections from the Pentagon, pilots, and the GPS community, all of whom predicted that the LightSquared system would seriously disrupt their navigational systems. In response, the FCC curiously did not conduct any testing itself – which it had the capability to do – but instead granted LightSquared a conditional waiver, contingent on passing NTIA testing before phasing into a full, revenue-producing rollout of their system.

Unfortunately for LightSquared, the Pentagon and other critics turned out to be correct. Tests showed that the LightSquared network interfered with 75 percent of general-purpose GPS receivers.  The FAA also announced that it interfered with a critical aviation system that alerts pilots of approaching terrain. The NTIA stated in its report that “[n]o additional testing is required to confirm harmful interference exists,” a conclusion that should spell the end of LightSquared’s waiver.

Initially, LightSquared tried to claim that the tests were not performed correctly, a claim that experts debunked.  Now, Ahuja and his company are claiming that the tests are irrelevant. In both Ahuja’s petition and the lobbying letters making their rounds in St. Paul, LightSquared now claims that they have a right to broadcast on their allocated frequencies any way they please, and that it’s the GPS devices that are “’squatting’ in the LightSquared spectrum.” The petition says that existing users of GPS services – including the military, pilots who would prefer not to fly into mountains and millions of average consumers – will just have to fix the problem at their own expense.

Of course, if LightSquared could do whatever it likes on its allocated frequencies, it wouldn’t need the waiver in the first place. As anyone who has dealt with FCC broadcast licensing knows, the license allows a broadcaster to operate under very narrow conditions, especially regarding power and the type of broadcast allowed on each frequency set. The entire reason that the FCC exists is in fact to prevent the kind of interference that LightSquared insists that it has the right to create.

So does this mean that Ahuja won’t get his declaratory ruling from the FCC? Probably. LightSquared has ramped up the pressure as it has begun to run low on cash,  that makes another round of R&D difficult. However, LightSquared has significant political connections. The majority owner of its parent, Harbinger, is hedge-fund wizard Philip Falcone, who has become a big donor to Democrats of late.

The Huffington Post reported this summer that Barack Obama himself was an investor in one of LightSquared’s previous incarnations, and that current investors enjoy access to “poker nights” and “luxe social events” at the White House. Reportedly, four-star Air Force General William Shelton told Congress that the White House pressured him to change his testimony on this issue to make it more favorable to LightSquared.

Two members of Congress have acted to head off a politicized outcome that makes current GPS receivers obsolete. Senator Charles Grassley (R-IA) has demanded to see all communications between the FCC, LightSquared, and the White House on their waiver application and approval. FCC chair Julius Genachowski has refused three times to produce the documents over the last seven months, but he did admit in writing to Grassley that the waiver “unambiguously conditions LightSquared’s commercial operation on first resolving those issues to our satisfaction,” and that “the Commission will not permit LightSquared to begin commercial service without first resolving the Commission’s concerns about potential widespread harmful interference to GPS devices.”

The overwhelming failure of the NTIA tests puts Genachowski in a corner, especially given the public statements from the Departments of Transportation and Defense specifying the failures.

In case that doesn’t prevent the FCC from succumbing to political pressure, Rep. Michael Turner inserted language into the National Defense Authorization Act (section 913) that requires the Secretary of Defense to ensure that no commercial services are presenting “widespread harmful interference” – and certify that every 90 days for the next two years. It furthermore requires that the FCC “ensure that the signals of Global Positioning System satellites can be received without interruption or interference.” President Obama will sign the NDAA in the next few days (a bill that has other controversial provisions in it), which will give this language the force of law.

Once Obama signs the bill, the FCC has no choice but to deny LightSquared’s petition for a declaratory ruling in their favor and refuse to allow them to proceed for another two years. That’s good news for consumers, travelers, and the military – but bad news for the company that tried to get a cell-phone frequency allocation on the cheap at the expense of everyone else.