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Summary:

OpenRange Communications, the company that scored a $267 million federal loan to build out a rural mobile broadband network, filed for Chapter 11 bankruptcy protection on Thursday leaving the U.S. government holding the bag on a $73.5 million in unpaid loans.

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OpenRange Communications, the company that scored a $267 million federal loan to build out a rural mobile broadband network, filed for Chapter 11 bankruptcy protection on Thursday. The petition lists several unsecured creditors such as Alavrian ($2 million), Globalstar ($735,000), network builder Velocitel ($5.6 million) and network integrator Adestsa ($7.6 million), but the U.S. government will be ahead of all of those folks in line to get paid from any asset sale.

As a secured creditor, the government will be one of the first in line for repayment of its loans although, it’s uncertain how much OpenRange’s assets would be worth, given it was building out a WiMax network. There’s not a huge market for WiMax equipment in the U.S. as Clearwire ( s clwr) and Sprint abandon the technology.

Paul Kapustka, over at Sidecut Reports has done a lot of digging on the story and has written a solid analysis of the loan situation. He explains it’s not as bad as it could be:

The good news for U.S. taxpayers is that Open Range Communications, the now-bankrupt startup that was trying to build rural wireless networks, never received the full amount of the $267 million loan it won from the U.S. Department of Agriculture back in 2008. The bad news is — according to research into Open Range’s agreement with the USDA — Open Range did receive $78 million from the USDA and has only paid back $4.5 million, leaving the government at the top of the creditors’ list of the Chapter 11-ed Open Range.

So OpenRange is on the hook for $73.5 million back to the government (and the taxpayers) while rural areas of the U.S. are still without mobile broadband coverage. Part of the drama in this particular case appear to be an issue with the satellite spectrum that OpenRange had hoped to use from Globalstar, which was later  revoked. The much-trumpeted deal with LightSquared that was announced this year was never finalized — possibly since LightSquared’s network is being held up.

While many will focus on the government loan in this situation, I think a more important lesson to take away from the OpenRange debacle is that building networks are hard. It takes a lot of money, the right technology bets, and the time and stamina to roll with the federal policy issues that always arise when spectrum is in play.

  1. In most of these articles the tax payer is the focus – which is right. I’d like to see greater emphasis on the small local businesses that provided services (carrying labor and materials) that will be left holding the bag even after secured creditors and the larger vendors are paid.

    These network are built in smaller communities, and to deploy them often used small businesses. What about these small local businesses endouring potentially crippling business effects due to this mismanagement (or possibly worse)? This is occurring in the very same small communities that were supposed to have enjoyed the economic stimulous associated with broadband connectivity.

    Can we have an article focusing in this often overlooked issue?

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  2. In most of these articles the tax payer is the focus – which is right. I’d like to see greater emphasis on the local small businesses that provided services (carrying labor and materials) that will be left holding the bag even after secured creditors are paid. The impacts if this mismanagement (or possibly worse) to tax payers must be investigated and justice served where due. The unsecured small business owners from these rural areas who helped to build ORC’s network also deserve financial justice.

    These network are built in smaller communities, and to deploy them very often uses local small businesses that carried materials and labor and were left holding the bag? What about these local small businesses endouring potentially mortal wounds to their businesses in the very “underserved” communities that were the target beneficiaries of rural broadband?

    Can we have an article focusing-in on these small business contractors and subcontractors? Can they find support from taxpayers in pursuit of their justice?

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