Falcone's LightSquared to Challenge Clearwire With 4G in Chicago, Dallas

Billionaire Philip Falcone’s LightSquared plans to expand to as many as nine U.S. metro areas next year, challenging Clearwire Corp.’s lead in offering fourth-generation wireless services, company documents show.

The closely held venture, backed by Falcone’s Harbinger Capital Partners hedge fund, will extend its network to Dallas, Chicago and Minneapolis in 2011, according to documents sent to potential partners. The company’s network may grow to 20 cities in 2012, including New York, San Francisco and Los Angeles.

Falcone started LightSquared on the assumption the U.S. wireless industry has room for another entrant. The documents show the company will offer 4G service largely in the middle of the country first and then expand to the coasts. Sprint Nextel Corp. already markets 4G through a venture with Clearwire; AT&T Inc. and Verizon Wireless plan to do so in the coming months.

“It’s an ambitious plan,” Steve Clement, an analyst with Pacific Crest Securities in Portland, Oregon, said in an interview. “If these guys can get it up and running well, Clearwire will have a reason to be concerned.”

LightSquared Chief Executive Officer Sanjiv Ahuja confirmed the content of the documents, adding that some specifics have changed since they were distributed late last year. Ahuja, who ran Orange SA in Europe, said he sees an opportunity to bring better and more innovative service to the U.S.

“There is a big demand-supply gap and we are trying to step in and fill some of that,” he said in an interview in New York. “In terms of wireless penetration, the United States today is nowhere near the top countries.”

Wholesale Model

LightSquared, formed through Falcone’s acquisition of SkyTerra Communications Inc., plans to sell capacity on its network to cable providers, consumer electronics companies and technology companies. That way a personal computer maker or television manufacturer could sell wireless service to consumers at the same time they sell their devices. With 4G technology, the users of devices including smartphones can surf the Internet and download data more easily than with existing technology.

“We are negotiating across all categories,” said Ahuja, 54, declining to provide company names. He said he was close to completing agreements with 10 technology companies, and “many of them could take several months to get finalized.”

LightSquared, based in Reston, Virginia, had expected this year to add 300 base stations, which handle network traffic, and about 5,000 by the end of 2011, according to the documents. Ahuja said LightSquared’s base station targets had changed and declined to give specific figures.

In 2012, LightSquared will add about 13,000 base stations in 11 more metropolitan areas, according to the documents. LightSquared is on track to begin constructing its network in December, Ahuja said.

Clearwire Competition?

Clearwire may see the most direct competitive threat from LightSquared, according to Clement. Clearwire, majority owned by Sprint, sells wholesale capacity on its network to corporate partners, in addition to marketing its Clear brand wireless service directly to U.S. consumers.

Clearwire has a head start, offering 4G service to roughly 56 million people. The company built its network to encompass about 50 U.S. cities since January 2009, said Jeremy Pemble, a spokesman for the Kirkland, Washington-based company. By the end of 2010, it will expand to Boston, New York, San Francisco and Los Angeles, he said.

Carriers are moving into 4G as consumers’ usage habits swing more heavily toward data use, such as video streaming and photo sharing. Chetan Sharma, an independent analyst, expects consumers to double their average data use by year’s end, compared with 2009.

LightSquared has reached out to about 35 technology companies, Ahuja said. “Our negotiations have progressed on a much faster pace than we had originally planned for,” he said.

LightSquared has agreements with several firms to provide devices to carriers who buy its wireless capacity. The company aims to provide terrestrial coverage, supplemented by two satellites, to reach at least 260 million people over the next five years.

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net

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