On a clear night last November, on the desert steppes of Kazakhstan, a private rocket lifted off from Baikonur Cosmodrome. One of the world’s largest commercial satellites was on board, fitted with a seven-story-tall antenna that could blanket the entire United States with wireless broadband service. The rocket took off smoothly and executed a roll maneuver before shrinking to a point of light in the sky and then vanishing into the darkness.
For LightSquared, the corporation that launched it, even the sky was no longer the limit. The telecommunications company, based in Reston, Va., has vowed to revolutionize the wireless market with a new sort of business model, offering the use of a broadband network at wholesale prices to any company willing to pay for it. Using its satellite, LightSquared hopes to provide broadband service anywhere in the United States, thus becoming the first start-up to break into the national wireless market currently dominated by four well-established major carriers: Verizon, AT&T, Sprint, and T-Mobile.
Pulling together the necessary elements—the radio spectrum, the infrastructure, and the customer base—to break into the wireless business is notoriously difficult. Still, LightSquared had already scaled some daunting barriers that had defeated other entrepreneurs. In 2010, a teensy satellite-communications firm called SkyTerra reinvented itself as LightSquared. The company secured almost $3 billion in capital from billionaire Philip Falcone, who is known for taking gutsy investment risks. It obtained federal licenses to utilize a sufficient chunk of radio spectrum for its network. And its broadband-for-all message matched the goals of President Obama and Julius Genachowski, the Federal Communications Commission chairman; Genachowski often cited the company’s plans for the slice of spectrum next to the one that Global Positioning System transmissions use. Armed with conditional approval from the FCC, LightSquared was poised to launch its network as soon as 2012, taking on the big boys in a way no small fry ever had before.
But less than a year after sending its satellite into orbit, LightSquared itself may be about to crash and burn.
The company’s first crisis was technological. Only after starting to build its $14 billion, latest-generation wireless network did it become clear that its signals interfere with GPS-enabled devices. This set off a barrage of lobbying in Washington aimed at stymieing the company’s plans. A coalition of opponents in the GPS industry, joined by government agencies—including the Federal Aviation Administration and the military—argued that LightSquared’s network would damage industries that depend on GPS and undermine national security. Pretty soon, company officials were traveling regularly to Capitol Hill to be grilled at hearings.
As congressional Republicans flayed the Obama administration for favoring a company to which the president (who once owned stock in LightSquared’s corporate predecessor) and others had ties, FCC backing began to unravel. “Clearly, in his support for LightSquared, the president has put political posturing over national security,” GOP presidential candidate Michele Bachmann, R-Minn., wrote in an open letter posted on her website last month, dubbing the situation “crony capitalism at its worst.” Lawmakers are comparing the company to Solyndra, the federally subsidized solar-panel manufacturer that just went under. Officially, the FCC’s approval process is still going ahead, but the agency’s public enthusiasm seems to have waned. It hasn’t set a specific time frame for acting on LightSquared’s application, considered a danger sign.
Even Falcone, the patron of the company’s revolutionary broadband network, has been reduced to defending the project against charges that it threatens national security and has benefited from political largesse. “It shouldn’t be a political issue,” he told Fox News anchor Megyn Kelly in an interview last month. “This is a business issue.”
Not anymore. LightSquared’s descent from golden child to punching bag shows how, at least in some sectors of the U.S. economy, just building a better mousetrap isn’t enough. Companies with smart ideas and shrewd investors can’t gain entry into the marketplace—much less master it—if they fail to surmount all the political and regulatory hurdles. Even if LightSquared can fix its technological problem, the company with a once-promising future faces a hard road back to any semblance of success. Washington, desperate to make wireless telecommunications more competitive, has instead furnished an object lesson in the technical, regulatory, and political challenges that new telecom companies are forced to navigate. Procedures that are designed for the public’s protection have created regulatory and political hurdles that most start-ups never need to face.