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Summary:

LightSquared’s bankruptcy is the conclusion of a process that is rigged against broadband competition. Maybe it would have failed for economic reasons, but before it got the chance it fell victim to politics, spectrum warfare, and interests that don’t want more wireless competition.

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Wireless networks are for the bold, the lucky and the impossibly rich. And as LightSquared, the company that hoped to build a wholesale LTE network using airwaves once reserved for satellite signals, files for bankruptcy, I feel an I-told-you-so coming on. I was doubtful of LightSquared’s success from the beginning, but I was hoping I’d be proven wrong.

Instead I was right about LightSquared’s eventual failure, but wrong about the reasons. Maybe it would have failed for economic reasons if it had ever gotten off the ground, but before it got that far it fell victim to D.C. politics, spectrum warfare, and interests that don’t want more competition in the wireless industry.

This was a story I was close to. I had broken the news of the network’s approvals with the FCC late on a Saturday night after sniffing around the story for two weeks trying to get confirmation. Just 24-hours after reporting the news I declared the idea of building a hybrid terrestrial and satellite network “Mission Impossible.” But after watching the LightSquared saga unfold, we now know there is a bigger story here here than the business model failure I focused on immediately after learning of Falcone’s plans.

The road to Chapter 11 was paved with rushed decisions.

LightSquared began as a tale of spectrum speculation with Falcone betting that the value of his satellite spectrum would tempt a buyer to snap up his investment, especially as concerns of a spectrum shortage started making it into the mainstream news. But with no buyers, the speculation turned into an actual effort to build a wireless network. Along the way, the FCC bent over backward to help Falcone build a wholesale 4G network that might help add a competitor to a markets dominated by AT&T and Verizon.

With the final waiver it granted, the agency eliminated some of the daunting technical and business model problems facing the proposed network and gave LightSquared the best chance to succeed. But it wasn’t enough, and absent a firm stance on how to solve the issue of interference, the FCC couldn’t keep pushing for LightSquared. After that point, a mix of vested interests and politics stepped in to replace the technical and business hurdles with controversies around interference and cries of political favoritism.

The GPS industry in January of 2011 began crying interference between LightSquared’s terrestrial network and everything from consumer’s phones to airplane navigation systems. There were real issues there and LightSquared’s proposed solution may not have entirely solved the problem.

Added to the GPS battle, the FCC was called on the carpet by politicians concerned about Falcone’s status as a Democratic donor and how far the agency had gone to help LightSquared succeed. The FCC should have just admitted that it did walk the extra mile for LightSquared in the interest of promoting broadband competition, but by then the GPS battle was inflamed and AT&T and T-Mobile were planning a merger. The agency decided to stop focusing on LightSquared, and saved its political capital for squelching the AT&T and T-Mobile merger.

When you play with politics you play a rigged game.

So what began as a business and technical drama ended in the hysterical flames of political wrangling between partisan groups, the GPS industry and operators and politicians out to use this as a sledgehammer to beat the FCC into submission. Ironically the FCC’s actions in LightSquared and in killing the AT&T and T-Mobile merger have drawn so much ire from Republicans and the big telcos that back them, that a bill has passed the House to effectively neuter the agency.

For the clearest example of how the interests that oppose more broadband competition view this entire issue, here’s Scott Cleland discussing the broad issue of wireless competition issue in a debate on Verizon’s plan to buy spectrum from the cable companies in a debate hosted by Stifel Nicolas in March. Cleland is Chairman of NetCompetition.org, which is a group he created to support broadband interests in their fight against network neutrality.

So it all comes down to, there are folks that want to manage competition at the FCC or they want to preemptively take the visible hand of the FCC and redistribute spectrum and customers and market share and economics to those companies they feel are needy so that the big companies can’t succeed. And that’s basically a de facto growth tax, a de facto success tax. It goes counter to everything about competition and market forces that people do win and lose.

But really the political argument here is that the folks that lost in the marketplace are running to Washington and asking for the regulators to level the playing field so that they can win with regulatory capitalism what they can’t win with real capitalism.

In Cleland’s worldview, LightSquared isn’t an innovator, it was a whiner that went to the FCC to try to level the playing field — to win with regulatory capitalism what it couldn’t do with real capitalism. If you don’t have the spectrum to build a network, see if the FCC can use a waiver or two to turn your spectrum into something that might be used to build a real network. I think LightSquared’s play was far more subtle, but it’s attempt at regulatory capitalism failed. It never even had the chance to compete with real capitalism because the powers that already control regulatory capitalism sent it to bankruptcy. It’s a rigged game.

So instead of saying I told you so, I’m going to hope that people remember LightSquared — not as some failed attempt to bring wireless competition to the U.S. market — but as a very real example of how ill-equipped the FCC and Washington are when it comes to trying to manage our spectrum resources and ensure the consumer interest. It’s a valuable thing to keep in mind as Congress and the FCC approach the clawback of spectrum from broadcast TV companies and the upcoming incentive auctions, and especially as the agency and the Department of Justice weigh in on the $4 billion spectrum deal that Verizon has signed with several cable companies.

  1. The whole cellphone incompatibility is Washington’s failure too.

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  2. Baxter Lee DeBerry Monday, May 14, 2012

    …thats without a doubt true, I for one will tell you, I wanted them to succeed in any way possible even though I also knew it wasnt gonna happen.

    Our goverment is so stuck on wanting the 2 major companys (AT&T and Verizon) for the money they poor into their Campaigns.., its curropted goverment is what it is, these companys can get what ever the heck they want UNTIL the PUBLIC STANDS UP, then the company has no chance (T-Mobile Merger) I hope these 2 doupoloys get what they got comeing to them, Karma always happens, especially AT&T, might be clearwire might be sprint (highly unlikely) or china telco, who knows, but this country needs competition even though the goverment wont allow it just cause AT&T and Verizon make sure it dont happen

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  3. “real capitalism” isn’t domination by 1 or 2 players. What we have looks an awful lot like domestic mercantilism, where the gov’t picks and backs the winners (with more than a little help from the winners in return).

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  4. Christopher Mitchell Thursday, May 17, 2012

    Cleland believes “real capitalism” is whatever benefits whoever is writing his checks. So long as we allow Washington to be so dominated by the check-writers, we won’t have a real choice and we’ll have to watch as people like Cleland are taken seriously.

    As for his nonsense about “regulatory capitalism” – show me a well-functioning telecom market without regulations.

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