Jessica Rinaldi/ReutersThe hedge fund manager Philip A. Falcone faces big challenges with his wireless venture, LightSquared.
8:46 p.m. | Updated
LightSquared, the wireless broadband venture controlled by the billionaire hedge fund manager Philip A. Falcone, has reached a 15-year agreement to jointly develop and operate a 4G network with Sprint Nextel, a reprieve for a company that has come under fire recently for its wireless ambitions.
The roughly $15 billion deal would allow LightSquared to piggyback on Sprint’s network instead of having to build its own, according to a letter Mr. Falcone sent to investors in his hedge fund, Harbinger Capital Partners. For Sprint, the deal gives it a partner to bear the cost of an expensive build-out and gives it access to LightSquared’s high-speed wireless service. The exact terms of the deal are still unclear.
Mr. Falcone has been under pressure on multiple fronts. Most recently, his company has been facing down concerns that its wireless venture will interfere with GPS signals, a condition that could pose problems for technologies as diverse as medical services and car systems.
A report by LightSquared on the extent of the potential interference has been delayed until July 1, but the looming issue had raised questions about the viability of Mr. Falcone’s venture, which cannot move forward under its current plans until the conflict is resolved. A spokesman for Mr. Falcone declined to comment.
Mr. Falcone, 48, rose to prominence in 2007 when his hedge fund placed a major bet against the subprime mortgage market that made him an instant billionaire. Known as a tough investor, Mr. Falcone built his reputation by buying up shares in troubled companies and finding creative ways to turn them around. But in recent years, Harbinger’s large ownership stake in LightSquared has frightened his investors.
Indeed, the wireless venture was the latest in a long line of actions that Mr. Falcone had taken that alienated Harbinger investors. His funds were down heavily during the financial crisis, and he refused to let clients pull out their money for fear of selling assets into a falling market. But during that same period, Mr. Falcone borrowed $113 million from one of his funds to pay a tax bill, prompting regulators to take a closer look at him and Harbinger.
Problems have grown worse for Mr. Falcone since then, as investors have withdrawn their money in droves and the size of his bet in LightSquared has swelled.
Mr. Falcone caught the attention of Washington lawmakers, who raised questions about why LightSquared was given a rare waiver by the Federal Communications Commission on the company’s operations. Senator Charles E. Grassley, Republican of Iowa, sent a letter to the F.C.C. requesting copies of all communications between the agency and Mr. Falcone and his companies.
The confrontation with GPS users has been the most recent hurdle for Mr. Falcone’s grand ambition, which is to create a broadband provider to help relieve the country’s overloaded wireless networks. Some have raised questions about the viability of any deal struck between the company and Sprint, given the uncertainty over the GPS issue.
Analysts figure that in addition to the GPS question, Mr. Falcone must raise billions of dollars more to pay for whatever deal he has worked out with Sprint to build the network they would share. LightSquared must also find customers and clean up some patches of its spectrum, or wireless capacity.
The deal, which was reported earlier by Bloomberg News, includes an upfront cash payment to Sprint as well as caveats should the GPS issue prove damaging to LightSquared’s ambitions, according to a person who has been briefed on the terms.
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