Blog Post

Hedge Fund Manager Falcone’s Big Bet On Wireless Broadband

Investors in the Harbinger’s hedge fund are increasingly uncomfortable with Philip Facone’s obsession with building a high-speed wireless broadband network. Falcone, who got rich by out-smarting the subprime housing bubble, has committed roughly $3 billion or 40 percent of the fund’s assets to LightSquared, making the telecom company the hedge fund’s single largest and most concentrated bet, according to a Reuters special report.

LightSquared will have to raise an estimated $6 billion to build out a network that will be late to market, especially when compared to Clearwire (NSDQ: CLWR), Verizon Wireless and AT&T (NYSE: T). So far, Harbinger has already contributed $2.9 billion in assets to LightSquared, which has secured additional debt and equity financing of up to $1.75 billion.

The plan is for Reston, V.A.-based LightSquared to leverage its deep nationwide spectrum holdings to provide a lower cost wireless broadband service to under-served areas. To do so, it will launch two satellites by early next year that could deliver signals to towers on the ground. It estimates that it could reach 260 million U.S. residents by 2015. Comparatively, Clearwire already delivers 4G to about 56 million people in the U.S.

If history is any indication, LightSquared has a lot going against it. Not only will it have to secure billions more financing, but it is following in the footsteps of a long list of failed broadband satellite providers.

Clearwire has demonstrated just how difficult and expensive it is to build a new wireless network from scratch. Over the past few years, it has raised billions in private equity and from a public offering and has secured even more from partners, such as Sprint (NYSE: S), Comcast (NSDQ: CMCSA), Google (NSDQ: GOOG) and others. LightSquared would inevitably have to secure more partners, but given that Clearwire has already aligned itself with Sprint and a handful of cable operators, the only obvious partner remaining, analysts say, is T-Mobile USA because it doesn’t have a 4G strategy. (T-Mobile has also been in talks to work with Clearwire.). Likewise, it would appear that LightSquared’s technology is completely unproven, and other telecom companies, like TerreStar, are near bankruptcy (Harbinger owns 30 percent of TerreStar, and could be lining up to take advantage of its weak financial position).

Regardless, Falcone is bullish and has hired experienced employees to run the day-to-day operations of the company. Sanjiv Ahuja, formerly Orange’s former chief, has been appointed to the position of CEO, and Frank Boulben, formerly of Vodafone (NYSE: VOD), is chief marketing officer.