Philip Falcone attempted to build a national wireless network, financing the project and taking a major stake in the entity, LightSquared, through his Harbinger Fund.  On Tuesday, the Federal Communications Commission rejected LightSquared's application for use of the airwaves, revoking the conditional approval for the network it had given last year.  That network which LightSquared had been building, was to serve as many as 260 million people. The decision to block LightSquared's proposed satellite system application follows an opinion rendered by the National Telecommunications and Information Administration, which said that "there is no practical way to mitigate the potential interference at this time" with GPS devices.  Its opinion was based on the latest tests by U.S. authorities, in which an Obama administration adviser found that LightSquared's transmissions disrupt navigation gear used by planes, boats and autos. LightSquared, in a statement, disagreed with the government’s findings and said it “fully expects” the FCC “to recognize LightSquared’s legal rights to build its $14 billion, privately financed network.” Impact of FCC's Rejection and Falcone's Likely Options. Since LightSquared is not likely to continue to develop as originally planned, majority stakeholder, the Harbinger Fund led by Phil Falcone, must weigh its options, as few as there may be.  All told, LightSquared Inc. invested $4 billion in airwaves crucial to its plan to offer service that lets users browse the Web at higher speeds.  Falcone's Harbinger Fund accounted for $3bn of the $4bn.

Impact. The setback threatens to leave the industry with one fewer competitor, harming regulators’ attempts to spur rivalry and benefiting incumbents - e.g., AT&T Inc. and Clearwire Corp.

Options. LightSquared may employ these options in an attempt to recoup some of its sunk costs:  (i) sell the airwave spectrum;  (ii) swap it for better airwaves;  (iii) sue the government;  and, (iv) reduce costs to stay afloat until a solution is found,

Options. “A reorganization might be considered in a situation like this,” according to BTIG analyst Piecyk.  “If the spectrum is deemed unusable they have to cut costs as much as they possibly can, because it might be hard to raise additional capital.”

Impacts. Harbinger lost 47% for investors in its main hedge fund last year, as Falcone, 49, was forced to cut the value of its Virginia-based LightSquared by more than half.

Impacts. Out of Time?  Financially, the company may not have enough time to attempt to work through the interference issues.  RBC analyst Jonathan Atkin said last month that LightSquared may run out of money within 6 months. While the company has signed on initial customers, including Best Buy Co., it has yet to start operating and earning revenue.

Impacts. Falcone manages about $4 billion as Harbinger’s Chairman and CEO. The main fund valued its equity and loans in LightSquared at $1.1bn as of 1/27/12, according to a loan document.  Harbinger Capital Partners LLC owns additional shares and loans of LightSquared outside of the main fund.   Falcone’s stake in the main fund is worth at least $850mn.

Impacts. The FCC rejection could unravel LightSquared’s agreements with more than 30 wholesale customers that had signed on to be users of the planned wireless network.

Impacts. Sprint Nextel Corp., the 3rd-biggest U.S. wireless carrier, and one of LightSquared’s main partners, has been distancing itself from the project in anticipation of the FCC rejection. Under their agreement, Sprint was to build and operate LightSquared’s network during an 11-year period, receiving $9bn in payments and $4.5bn in service credits.

Options. It may all come down to several big investors taking control of the business.  As it became increasingly likely that LightSquared would be able to conquer the spectrum challenges put up by the FCC and others, wealthy investors - Carl Icahn, David Tepper and Andrew Beal in December 2011 bought $300 million in the venture’s debt from Farallon Capital Management LLC.  The move may help give Icahn control of LightSquared’s spectrum for less than what Falcone originally paid.

Updates are sure to come in.  We'll report developments as they are reported. For further details, go to:  [Bloomberg, 2/15/12]