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Death of satellite LTE project essentially sealed the firm's fate

Philip Falcone, Harvard University economics grad and billionaire venture capitalist, has seen his hopes to deliver 4G satellite LTE crash and burn.  Despite his fortune, Mr. Falcone had to dig deep to scrounge up $5B USD in extra venture capital to pay for the world's largest communications satellite in history -- the 5.4 ton SkyTerra 1.

Launched in 2010, all was going glorious for Mr. Falcone and his new venture LightSquared.  Soon they had worked out a $9B USD deal with Sprint Nextel Corp. (S) to deploy a terrestrial LTE network to complement the satellite offerings.  Together the terrestrial + satellite solution was expected to dominate the LTE market when it launched sometime around 2013.

But optimism surrounding the U.S. Federal Communications Commission's conditional approval of LightSquared's satellite LTE turned to dismay when the U.S. Air Force revealed that it would interfere with an estimated 75 percent of commercial and government GPS units.

SkyTerra 1
LightSquared's doomed LTE bid involved a record-setting 5.4 ton satellite. [Image Source: Boeing Comp.]

And just in case rendering navigation useless across the continental U.S. wasn't enough of a death sentence, the SkyTerra 1 bid became an intensely politicized issue when it was revealed that LightSquared's legal team had pressured the White House chief of staff, reminding him of the millions Mr. Falcone had raised for President Barack Obama's election bid.  Many believe those donations led to a hasty conditional approval by the FCC, overlooking interference concerns.

But in the end those contributions were for naught because even the friendly Obama administration was forced to kill LightSquared's proposal.  Sprint, upset at losing a key part of the service, also terminated its contract with LightSquared.

With no terrestrial deployer, billions in debt, and a defunct multi-ton hunk of metal floating in orbit, the latest entry in this story is perhaps a predictable one -- LightSquared has filed for Chapter 11 protection in New York's Southern District Court in New York.

The bankruptcy spells dire news for hedge fund Harbinger Capital Management, as well as Mr. Falcone.  The perhaps ironically named hedge fund was a deep investor in LightSquared and joined Mr. Falcone in trying to propose stop-gap deals to placate creditors who grew increasingly unsettled in the wake of the satellite deal collapse.

Philip Falcone
The LightSquared failure is the first major defeat for venture capital whiz Phillip Falcone.
[Image Source: Jacob Kepler/Bloomberg/Getty Images]

Most of LightSquared's staff has already jumped ship, so at this point creditors may be left picking at a carcass.

LightSquared's marketing chief Frank Boulben has gone from one bankruptcy candidate to another, becoming the new chief marketing officer (CMO) for money-losing Canadian phonemaker Research in Motion, Ltd. (TSE:RIM).  CEO Sanjiv Ahuja, stepped down in February.

With the bankruptcy filing LightSquared and its ambition to become a fifth major American wireless service provider are -- for all intents and purposes -- dead.  The company's meteoric rise and bizarre fall stand as a cautionary tale to those who might wish to cut corners to establish themselves as a competitive service provider.

Source: LightSquared



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