The LightSquared enigma

What to make of LightSquared? The newest entrant on the mobile broadband scene has a bold plan, but there seems to be so many obstacles preventing it from executing that plan. Ask the financial analysts, they smirk and say “show me the money.” Talk to the GPS folks, who will have a big say in whether LightSquared’s plans become reality, and they claim there’s no way LightSquared can build a long-term evolution (LTE) network that won’t bring down the global positioning services that so many industries depend on.

For me, LightSquared’s rather “fluid” build strategy gives me the most pause. What started out as an ambitious plan to privately fund a nationwide rollout of 40,000 base stations (CP: NSN to ramp up U.S. operations in wake of $7B LTE deal) seems to have morphed into some sort of formless hybrid strategy, relying on partners such as Open Range Communications (CP: Open Range does 180 on network plans) to build its network in pieces as LightSquared searches for investors and lenders to fund the subsequent stages of its rollout. The latest skinny is that LightSquared is in talks with Sprint to build its LTE network on top of Sprint’s (NYSE:S) new Network Vision technology-agnostic network (see DSLreports story). I must point out that those reports are unconfirmed, but since LightSquared isn’t exactly refuting them, it throws an extra variable into the equation.

For comparison, look at Clearwire (NASDAQ:CLWR). Its similarly bold plans to build a nationwide WiMax network were first delayed and now halted by its problems securing funding. Sprint’s future is a big question mark largely because it’s being so vague about its future mobile broadband plans.
Also consider Terrestar, which proposed a plan almost identical to LightSquared’s: building a hybrid satellite-terrestrial broadband network through partnerships (CP: Signals from Earth, signals from space). Terrestar and LightSquared even share the same investor, Harbinger Capital Partners, and supplier, Nokia Siemens Networks (NYSE:NOK, NYSE:SI). Now Terrestar is in bankruptcy.

Also worth mentioning is Qualcomm (NASDAQ:QCOM), which failed to take its FLO TV network nationwide and wound up canning the service, recently selling its spectrum to AT&T (CP: AT&T buys FLO spectrum for more 4G downlink capacity).

Circumstances for all of these operators are different, but the point I’m trying to make is that the lack of a definitive timeline, strategy or funding in one way or another caused their undoing. Successful network launches are the ones that have definitive timetables, dedicated capital and whose execution plans can be summed up in a simple sentence. Just ask Verizon Wireless (NYSE:VZ, NYSE:VOD).

I’ll admit I’m a little baffled by LightSquared. I just can’t see how their nationwide network—and it must be nationwide--will get built under its current mishmash of plans. Yet I cannot question the fact that they’re generating enormous momentum in the industry.

Open Range and Leap Wireless (NASDAQ:LEAP) were important wins, but CEO Sanjiv Ahuja’s announcement of Best Buy (NYSE:BBY) as a customer was the clincher, showing there is pent up demand for independent wholesale mobile broadband service. LightSquared also apparently has sign up a major mobile device manufacturer, looking to shed the bonds of U.S. retail operators (CP: LightSquared lands Best Buy: wholesale commitments start to rack up). I heard a lot of speculation at CTIA, that manufacturer is Apple, but that’s just silly. The iPhone needs a nationwide voice network, which LightSquared can’t provide. Sure it could just launch the iPad over the LightSquared network. Apple doesn’t want to be an operator. It wants the invective directed at AT&T (NYSE:T) to stay directed at AT&T. My best guess is the device maker is HP (NYSE:HPQ), but it could be any tablet or data-centric consumer device maker. Wouldn’t it be ironic if it was Garmin (NASDAQ:GRMN)?

Garmin, of course, is leading the charge against LightSquared, claiming that LTE and GPS simply can’t coexist in the same neighborhood of the electromagnetic spectrum. At CTIA, I had a conversation with Nigel Wright, vice president of wireless for Spirent, which is making the test equipment that could eventually prove or disprove Garmin’s claims. Though the criticism is framed in terms of consumer GPS devices, Wright explained the real issue isn’t the assisted GPS in your phone or the navigation console in your car. Rather it’s the highly sensitive GPS gear used by industries such as aviation and surveying. While both sides have produced their own data claiming that there will definitely be or won’t be interference from LTE, no one knows for certain, Wright said, simply because no test parameters or methodology have been established and no actual independent testing has been done.

Spirent is trying to act as neutral broker between the two sides recommending academic institutions such as the University of Calgary to devise and perform those tests. But until those tests are done, the issue of GPS interference remains an open question, Wright said.

So let’s go back to the original question: What to make of LightSquared? A simple study from an independent lab could kill LightSquared’s plans instantly, unless LightSquared and its vendors can develop suitable and inexpensive filters to make the deployment possible.

As the financial analysts point out, LightSquared can sign all of the memoranda of understanding it pleases, but unless those partners pony up cash or independent investors show up, the operator won’t get much further than its initial trial networks, rendering contracts like Best Buy’s worthless. Remember, Clearwire has a deal with Best Buy, too, and that hasn’t done much for its financial situation.

But there’s no denying that a lot of people want to buy what LightSquared is selling.

Reports are emerging left and right that LightSquared is in discussions with cable operator A, regional wireline operator B or retail brand C. According to LightSquared it’s already landed five contracts, is in final negotiations with 15 entities and in discussions with 60 total.

Maybe this is horse or carrot situation: To raise money, LightSquared first has to prove it will make money.

Or LightSquared could be taking the same approach to its network build as AT&T is taking with its proposed acquisition of T-Mobile (NYSE:DT): If you make something seem inevitable then maybe it becomes inevitable.