With this week's potentially fatal regulatory decision against it, Harbinger Capital Management's wireless Internet venture is scrambling to find a Plan B.
The Federal Communications Commission decided this week to revoke LightSquared's provisional waiver to use its segment of the electromagnetic spectrum to offer 4G Internet services. That left the company and the hedge fund that has poured $3 billion into it in some dire straights.
Harbinger and LightSquared have explored a possible spectrum swap with the Defense Department, whose opposition to its plans—tests showed that LightSquared's network would interfere with global positioning systems—helped sway the FCC. Barring that, the two—and other LightSquared shareholders—may pursue the inevitable legal route.
They may have to. Experts say that a spectrum swap is highly unlikely. Defense has proven loathe to give up its spectrum, and under recently passed legislation, such pieces of the spectrum could be auctioned off for billions of dollars.
"A swap of spectrum isn't a realistic option," Walt Piecyk of BTIG told Bloomberg News. "First, there's nothing readily available and second, if there was, that's spectrum that could be auctioned off for billions in proceeds."
And given the FCC decision, LightSquared probably won't have any more luck trying to sell its spectrum. While Bloomberg Research estimates that it is worth about $500 million, another analyst, TMF Associates' Tim Farrar called its value "approximately zero."
Harbinger and LightSquared say they have no plans to file for bankruptcy, and that they remain committed to finding a solution to the GPS interference issues. But they have retained investment bank Moelis & Co. to investigate alternatives. And they have also retained some lawyers.
Harbinger has hired Latham & Watkins for advice on the regulatory situation. But it's also hired Kirkland & Ellis in case it feels compelled to sue the FCC.
Harbinger and LightSquared aren't the only ones pursuing a possible lawsuit against the regulator. Several LightSquared bondholders, among them Appaloosa Management, Icahn Associates and Providence Equity Partners, have hired Bingham McCutchen, whose Andrew Lipman focuses on FCC policy.