OpenRange bankruptcy will leave taxpayers on the hook


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.

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