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Analysis: LightSquared in 11th-hour effort to woo Washington

By Jasmin Melvin

WASHINGTON (Reuters) - Telecom startup LightSquared is mounting a last-ditch effort to win U.S. regulatory approval for a new wireless network after being outmaneuvered by the GPS industry, which has spun doomsday scenarios of interference problems that could cause planes to fall out of the sky and threaten national security.

Billionaire hedge fund manager Philip Falcone has bet more than $3 billion of his Harbinger Capital Partners money on LightSquared, which in turn has spent more than $1 million on lobbying efforts in Washington to try to get approval to launch a new high-speed wireless network.

The company is staring down an end-of-the-month deadline for the government to give the green light, before partners start bolting and as its cash position gets more dire.

LightSquared reported a $427 million net loss for the first nine months of 2011 and could run out of money in the second quarter of this year if it cannot raise additional capital and financing.

LightSquared's term loans were trading around 50 cents on the dollar in the secondary market, a sharp discount to their face value. The loans were fetching 90 cents on a dollar over the summer, but the price for the debt dropped sharply as concerns over the GPS problems magnified and investors began wondering about the company's ability to raise new money.

The collapse of LightSquared could prove disastrous for Falcone's hedge fund, as roughly half of Harbinger's assets are tied up in LightSquared.

Harbinger spokesman Lew Phelps said the hedge fund "is focused entirely on working with LightSquared to obtain FCC approval."

LightSquared last month hired Washington's top-earning lobbying firm, Patton Boggs, to join an already formidable force of 15 lobbying firms that includes Gephardt Group, K&L Gates, Dickstein Schapiro and Podesta Group.

The Reston, Va.-based company's lobbying expenditures reached $1.24 million as of October 31, compared with just $265,000 in 2010, according to data from the Center for Responsive Politics.

But it is a long shot, analysts said, for LightSquared to overcome the scare tactics effectively sold to lawmakers by the GPS industry, backed by big names such as Deere & Co, Delta Airlines and Trimble Navigation Ltd. They contend that LightSquared's network would overpower the weaker signals received by military and civilian global positioning system devices that serve purposes ranging from guiding weapons to planting crops.

Those lawmakers hold considerable sway with the Federal Communications Commission, which has dragged its feet in approving the deployment of LightSquared's high-speed wireless broadband services.

"Right now, I see absolutely no way for LightSquared to get political support. In an election year, I don't think there's a Democrat or Republican that will go within 1,000 miles of LightSquared because of all the fear tactics that have been employed," said former FCC chief engineer Ed Thomas, who joked that he still had scars from his dealings with the GPS industry while at the agency.

LightSquared and its lobbyists have become increasingly frustrated with the tactics of the GPS industry. They point to testing that has shown that the interference is not a result of LightSquared's signal bleeding into the GPS frequencies, but instead is caused by GPS receivers looking into LightSquared's airwaves.

LightSquared contends that GPS manufacturers knew at least six years ago that their devices were picking up LightSquared's spectrum.

"All they had to do was put one of these filters in, an almost insignificant change to their design, and we wouldn't be where we are today," said Jeff Carlisle, LightSquared's executive vice president of regulatory affairs and public policy.

But Jim Kirkland, vice president and general counsel of Trimble and a founding member of the Coalition to Save Our GPS, said "the suggestion that GPS manufacturers should have designed their equipment to accommodate a prohibited spectrum use is completely meritless."

Akin Gump Strauss Hauer & Feld, which ranks second among Washington's top earning lobbying firms, is leading the GPS coalition's government relations effort against LightSquared. Trimble shelled out $620,000 to the firm in the first three quarters of 2011 to lobby on GPS interference issues.

IMPROPER COMMUNICATIONS

LightSquared also contends that the GPS community has created a hyper-political rhetoric that has led to accusations of campaign donations being used as leverage for meetings with senior White House aides and reports that senior administration officials were pressured to change their congressional testimony to look more favorably on the wireless venture.

"The other side has spun this up into this crazy, baseless accusation of political favoritism and radical change by the FCC, and it's nothing of the sort," said Mark Paoletta, a Dickstein Shapiro lobbyist working with LightSquared.

Paoletta is tasked with convincing policymakers that a solution exists. His message to them: "please don't blow up the process by acting on a misleading story that distorts the facts."

LightSquared has a vision to roll out a national network that would use satellites and land-based signals to reach roughly 260 million people. It is a private-sector venture that could help the Obama administration's goal of extending affordable broadband services to more Americans. It also could help technology companies who are facing a spectrum crunch. LightSquared intends to sell wholesale wireless services to companies which would then resell the service under their own brand names.

LightSquared plans to share network infrastructure with Sprint Nextel Corp and agreed to pay Sprint $9 billion to build out LightSquared's 4G network. The agreement is contingent on LightSquared getting regulatory clearance by the end of January.

That will be a tough task. The FCC has said LightSquared must address all interference and safety issues before it signs off on the company deploying its network. And due to effective lobbying by the GPS industry, Congress recently passed legislation that restricts the FCC from giving its approval until the U.S. Defense Department is satisfied that the interference issues are resolved.

The FCC had no comment on the firm's most recent filing urging approval.

A former senior FCC official, who spoke on the condition of not being named, said the agency has been sympathetic to LightSquared's cause since 2003 when the agency adopted rules under former FCC Chairman Michael Powell, a Republican, to allow LightSquared to operate near GPS.

"The FCC staff has for a long time been of the view that GPS gets way too much protection," the former official said.

"They really like the idea of using the spectrum more efficiently like LightSquared wants to... (so) you have a staff that is very sympathetic on pure policy grounds to LightSquared, but the politics of it have just become a nightmare," the former official told Reuters.

He added while the FCC would like to approve LightSquared's network, "there's a real possibility this never gets off the ground."

HISTORY REPEATS ITSELF

GPS has a history of successfully selling its cause when a technological development is perceived as a nuisance.

Ultra-wideband, a technology used in ground penetrating radar and some wireless microphones, among other products, transmits information at very low power levels but battled GPS to get off the ground a decade ago.

Thomas, the former FCC chief engineer, said he was accused of creating a situation where airplanes would crash and national security would be at risk during the proceeding to authorize the UWB technology - the same accusations LightSquared has been hit with. A heated battle ultimately saw the technology approved with what Thomas viewed as far stricter limitations than needed to protect GPS.

"There's - for lack of a better word - I'm going to call it a religion GPS uses, which says don't get near me, period," Thomas said. "The net result is we allowed the product, but we limited innovation."

LightSquared lacks the built-in political constituency GPS can tap on Capitol Hill, including the military as well as defense, airline, farm and electronics industries, said Jeffrey Silva, an analyst at Medley Global Advisors.

"It's just hard for the FCC to go up against, in a post-9/11 world, the Department of Defense when you're talking about homeland security and safety of life," Silva said.

LightSquared's Carlisle said he is confident the firm can shift the conversation away from the GPS industry's scare tactics and back toward the benefits of LightSquared's network.

"We believe that the underlying technical facts and the legal position on this is so strong that, at the end of the day, that drives the resolution of this. The politics eventually have to acknowledge reality," Carlisle said.

(Reporting By Jasmin Melvin; Editing by Tim Dobbyn)

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