LightSquared fights the results of USAF interference testing, even as it faces accusations of bribery

As if consistent quarterly losses weren't bad enough, Sprint Nextel Corp. (S) may now be looking for alternative financing for its transition from WiMAX to LTE -- the industry standard, thanks to U.S. adoption by Verizon Wireless, the joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD), and AT&T, Inc. (T) [1][2].

I. LightSquared Collapse Sends Shockwaves Through Wireless Industry

Sprint, which recently signed a $15B USD contract to deploy LightSquared's terrestrial LTE, had hoped to launch LTE handsets near the start of H2 2012, but it now may be forced back to the drawing board as its partner find itself entangled in a sordid mess of accusations regarding design negligence and political bribery.

It's been an odd year in the telecom industry.  AT&T tried fruitlessly to gobble up Deutsche Telekom AG's (ETR:DTE) T-Mobile USA, hoping to sway U.S. regulators with "suicide-pact" like terms, which would force it to pay big lump sums of spectrum and cash to DT AG if the deal collapsed.  When the deal did collapse AT&T was forced to reap the sour terms it sewed.

But all the oddness of T-Mobile-gate looks pedestrian in comparison with the case of LightSquared v. the U.S. Air Force -- one of the oddest conflicts in the wireless industry in the last decade.

GPS LightSquared
LightSquared's $15B USD with Sprint is almost sunk thanks to U.S. Air Force claims that it would cripple 75 percent of GPS devices. [Image Source: O-Digital]

The sinking hopes of LightSquared are a blow to many in the U.S. market.

The conflict is also a setback for AT&T and Verizon, which hoped to leverage the company's independent spectrum to beef up their networks.  But most of all, it's a setback to very small service providers that lacked the kind of financial firepower of Sprint, AT&T, and Verizon -- companies that would be incapable of deploying LTE on their own.

II. Falcone's Rise From Blue Collar to Billionaire

LightSquared began with an ambitious premise -- to provide independent 4G spectrum across the U.S.  Describes independent analyst Jeff Kagan, "It was based on a brilliant idea, and it would have solved the nation's growing wireless data spectrum shortage if it had panned out -- offering spectrum and related services to a wide variety of companies, not just AT&T and Verizon."

The company was the brainchild of Philip Falcone, an unusual self-made billionaire veteran of the finance industry.  Mr. Falcone grew up the son of a utility superintendent, but worked hard to receive a Bachelor's degree in Economics from Harvard University, while on financial aid, and then took a year off after graduation to play professional ice hockey in Sweden.  Mr. Falcone was forced to abdicate his brief pro-sports career after a head injury -- an increasingly familiar story in today's national hockey league.

Phillip Falcone hockey
Phillip Falcone briefly went pro in hockey, after being a key player at Harvard.
[Image Source: Harvard University]

But that end proved the beginning of a fruitful career as an accounts executive.  Living the American dream, the hockey fanatic from Chisholm, Minn. soon became a billionaire thanks to his string of successes.

In the early 1990s Mr. Falcone sunk his money into Skyterra, a satellite communications firm, with the goal of launching his own satellite wireless network.  The bid worked, thanks to the successful launch of MSAT-2 in 1995 and MSAT-1 in 1996.

III. The Big Bet -- LTE

After successfully providing cable and 3G technologies for the last decade, LightSquared bet big on LTE.  It launched in 2010 SkyTerra 1, a massive 5.4-ton satellite.  Launched from Russia, the satellite has the largest communications antenna of any commercial satellite in orbit.

SkyTerra 1
SkyTerra 1 was a record-setter. [Image Source: Boeing Comp.]

The company also entered into agreements with Inmarsat plc (LON:ISAT) to merge its 59 MHz of L-Band coverage with Inmarsat's to create a pool to accelerate LTE deployment.

But the ambitious scheme hit a very big roadmap when GPS providers began to complain that that high power signals close to their frequency would cause interference.  The National Telecommunications and Information Administration (NTIA) -- an executive branch agency that advises the President of the United States as part of the U.S. Department of Commerce -- wrote a letter supporting these claims.

The NTIA advised the U.S. Federal Communications Commission to overturn its early authorization [PDF] of LightSquared's new service, writing [PDF]:

[T]his proposal raises significant interference concerns. Grant of the LightSquared waiver would create a new interference environment and it is incumbent on the FCC to deal with the resulting interference issues before any interference occurs. Several federal agencies with vital concerns about this spectrum band, including the Departments of Defense, Transportation and Homeland Security, have informed NTIA that they believe the FCC should defer action on the LightSquared waiver until these interference concerns are satisfactorily addressed.

The fears were reportedly realized when the U.S. Air Force Space Command's contractors completed tests and found in preliminary tests that the satellite and terrestrial LTE service interfered with GPS satellite signals.  Gen. William L. Shelton -- head of USAF Space Command -- recommended that a license be tentatively denied.

U.S. Air Force Gen. Shelton
Gen. William L. Shelton, head of the U.S. Air Force's Space Command, condemned the LightSquared test results. [Image Source: Space Foundation]

The testing indicated that the service would interfere with an astonishing 75 percent of GPS receivers, leading to questions of how the FCC granted it conditional approval in the first place.

IV. LightSquared Fires Back

In a bitter press release last week, LightSquared fired back attacking the U.S. Air Force for what it sees as incompetent testing.  It writes:

In a call with reporters, Jeff Carlisle, LightSquared’s Executive Vice President, Regulatory Affairs and Public Policy; and Geoff Stearn, LightSquared’s Vice President for Spectrum Development; outlined how GPS industry insiders and government end users manipulated the latest round of tests to generate biased results. Also on the call was Edmond Thomas, former chief engineer at the FCC who explained how fair and accurate testing should be conducted.
  1. Testing was shrouded in secrecy, no transparency. The GPS manufacturers cherry-picked the devices in secret without any independent oversight authority in place or input from LightSquared. The GPS manufacturers and the government end users put non-disclosure agreements in place for the PNT EXCOM’s tests, preventing any input by an independent authority or from LightSquared before the tests began. This secrecy made it impossible for independent experts to properly oversee or challenge the process and results, thereby leaving taxpayers who paid for the testing no option but to take the PNT EXCOM’s word for it.
  2. The testing protocol deliberately focused on obsolete and niche market devices that were least able to withstand potential interference. When LightSquared finally obtained a list of the devices tested, after all testing in this first phase of tests had been completed, it was able to determine that the testing included many discontinued or niche market devices with poor filters or no filters. The units tested represent less than one percent of the contemporary universe of GPS devices. In fact, the only mass market device alleged to “fail” during this round of testing performed flawlessly during the Technical Working Group testing, which used best practice protocols agreed to by all parties, thus raising doubts about the integrity of PNT EXCOM’s process.
  3. The testing standard does not reflect reality. To guarantee favorable results, the PNT EXCOM selected an extremely conservative definition of failure – one dB of interference. Independent experts agree that a one dB threshold can only be detected in laboratory settings and has no impact on GPS positional accuracy or user experience. In fact, GPS devices are designed with the ability to withstand eight dB or more of loss of sensitivity due to man-caused and natural interference. By setting the definition of interference at one dB, the testing was rigged to ensure that most receivers would fail. It should be noted that PNT EXCOM and others have justified the one dB threshold by citing an International Telecommunication Union (ITU) standard. However, that standard explicitly states that it does not apply to general purpose GPS receivers.
GPS and government end users should have opened the process for transparent review, chosen a representative sample of devices that reflect the scope of general purpose GPS receivers in the marketplace today, applied best practice standards to the testing protocol, and – most importantly, the tests should have been conducted by an independent laboratory rather than by the GPS manufacturers themselves, since they had a large incentive to ensure that the tested receivers would not pass the testing.

LightSquared contends that the outside firm retained by the USAF for GPS concerns -- Space-Based Positioning, Navigation, and Timing Executive Committee, or PNT EXCOM -- delivered bogus results to promote the interests of GPS firms.

Jonathan L. Kramer, founding attorney of Kramer Telecom Law Firm was unimpressed by LightSquared's response.  He remarks in an interview with the E-Commerce Times,  "[The company is behaving like] a petulant kid in the school yard who loses at a game and then claims everyone else cheated.  If there was a legitimate concern about the testing process, then the time to raise that issue was before the testing is done -- not afterwards when you don't get the result you are looking for.  The bottom line is a lot of smart people on both sides of the issue have been involved in the process, and any legitimate concerns should have been identified, discussed and resolved a long time ago."

If LightSquared's hopes are indeed permanently sunk, it will be an interesting case study in governance as nothing like this has occurred in the modern era of telecommunications.  The federal government appears to be well within its authority here, as the U.S. Constitution emphasizes the role of the federal government in provide national defense.  And if the USAF's contracted testing is indeed on level, LightSquared could impair military GPS use, and as a result weaken the national defense.

V. Obama Accused of Accepting Payola to Push Satellite Bid

The issue is further muddied by the fact that Republicans in Washington D.C. accuse the Obama administration of conspiring with LightSquared to push FCC authorization of the unusual high-powered satellite service.  The Washington Post writes:

GOP staffers of the House strategic forces subcommittee accused the White House of trying to influence the testimony of an Air Force general who was speaking about the project's potential to interfere with the Global Positioning System, the satellite network relied on by the military and private industry. The staffers said Gen. William Shelton revealed in an earlier closed meeting that the White House pressured him to include language in his testimony Thursday supporting LightSquared's venture.

Indeed, Barack Obama was an early SkyTerra investor, putting $90,000 USD in the company [source].  While he lost $15,000 USD on that stake, reportedly, he gained a long time financial ally for his campaign and his party's campaigns.

Two days before the waiver for the LTE service was granted, Mr. Falcone and his wife donated the maximum allowed individual donation of $30,400 USD, while LightSquared CEO Sanjiv Ahuja also chipped in his $30,400 USD.  But those donations were mere token gesture versus a much larger fund-raising event that reportedly drew in millions for the President and fellow democrats.  

Obama bribery wide
Obama and D.C. Democrats are accused of taking cash bribes to push through LightSquared's reportedly dangerous service. [Image Source: Politically Incorrect]

An L2 executive next emailed Aneesh Chopra, President Obama’s chief technology advisor (and former LightSquared board member):
Hi Aneesh!
I touched base … Sanjiv Ahuja and he expressed an interest in meeting with you.…  He is going to be in DC next week for a fundraising dinner with the President.
The company's lawyer also drove home the message, sending a redundant email to the White House Chief of Staff:
You may recall that you met with Sanjiv Ahuja about a year ago, with Phil Falcone … as Phil & Sanjiv were finalizing their plans for a new wireless broadband network….  Sanjiv will be at a fund-raiser dinner with the President on September 30 and would like to visit with you … and Aneesh Chopra…
Mr. Ahuja admits the emails do "serious doubts about the fairness and integrity of the entire process", but condemned their release, calling for a formal government investigation into the leak.

VI. What's Next?

New independent tests have just been published that confirm the USAF's contractor's early findings -- LightSquared's LTE would cause substantial GPS interference. 

LightSquared is expected to announce its course of action on Wednesday.  It is rumored that the company is working to negotiate a deal to weaken the strength of its signal, a move experts say could reduce its GPS interference down to about 10 percent of commercial and military devices.

Sources: Washington Post, Light Squared, Forbes [Philip Falcone bio], NTIA

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