Falcone Mobile Venture to Spend $7 Billion, Mulls IPO

Billionaire Philip Falcone’s private U.S. wireless network said it will spend $7 billion over 8 years to compete with Sprint Nextel Corp. and other carriers, and could pursue an initial public offering.

“That’s what you build a business for,” Sanjiv Ahuja, chief executive officer of the venture, said in an interview today. “We expect to be making use of public markets,” he said, without giving specifics.

LightSquared, as the venture is known, plans to pay Nokia Siemens Networks $7 billion to build and manage its network, beginning with the launch of its wireless broadband service in four trial cities by early next year. The company, backed by Falcone’s Harbinger Capital Partners, plans to construct a so-called fourth-generation wireless network supplemented by satellite coverage.

LightSquared will face off against Sprint, AT&T Inc. and Verizon Wireless in offering 4G service in the U.S. Sprint’s 4G network, introduced this year, already covers 43 markets and Verizon Wireless will begin rolling out its 4G network later in 2010, followed by AT&T next year.

Analysts, including Philip Cusick of Macquarie Research, expressed skepticism that there is room for another competitor.

“We do believe in the need for additional capacity over time, but believe it would be better used as part of an existing network than for another competitor,” Cusick said in a research note today.

Resale Model

LightSquared has spoken with 30 companies about leasing its 59 megahertz of spectrum for use in mobile phones, laptops and other wireless devices. “Our objective is to build a network that is focused on serving the needs of our retail customers,” said Ahuja, who declined to identify any of the companies.

The venture will sell mobile Internet access to partners such as phone carriers, retailers and cable operators, said Chief Marketing Officer Frank Boulben in an interview. The company’s satellites may help partners offer service in rural areas that are difficult to reach with traditional technology.

LightSquared, based in Reston, Virginia, will launch its first satellite by year-end, followed by another early next year, said Boulben, who was previously global director of commercial strategy for Vodafone Group Plc. LightSquared will begin testing its network in Phoenix, Denver, Las Vegas and Baltimore by early 2011, he said.

The four trial cities have sufficiently different weather, topography and demographics to test the LightSquared network, Sue Spradley, chief of Nokia Siemens Networks’ North American business, said in an interview.

Falcone’s Financing

The venture is raising as much as $1.75 billion in additional financing for expansion. New York-based Harbinger, which had earlier contributed $2.9 billion for the venture, has said it plans to build a nationwide network that will cover at least 260 million people in the next five years, according to regulatory filings. Harbinger gained rights to satellite licenses through its acquisition of SkyTerra Communications Inc.

Ahuja declined to say where LightSquared received its outside financing. The company, with about 200 employees, is seeking a full-time chief financial officer, said Boulben.

Building the network will cost at least $10 billion, Wells Fargo & Co. analyst Gray Powell said in a note today. “There is still much uncertainty about Harbinger’s longer-term ability to meet its build targets,” Powell said.

Boulben said that Falcone isn’t planning to sell the venture for its wireless licenses. “That speculation is dead on arrival” with today’s announcement, he said.

Public Interest?

LightSquared would need the approval of the U.S. Federal Communications Commission for any sale to determine if it were in the public interest, according to filings with the agency.

Verizon Wireless and AT&T are barred from leasing more than 25 percent of LightSquared’s spectrum without prior commission approval, the documents show. The carriers have protested that provision.

“There’s enough spectrally challenged operators out there that can use this spectrum,” said Spradley in the interview. She didn’t say which carriers LightSquared or Nokia Siemens Networks had spoken with.

Nokia Oyj, which owns Nokia Siemens with Siemens AG, rose 2.2 percent to 6.92 euros in Helsinki trading today. The stock has declined 22 percent this year. Siemens fell 0.8 percent to 72.66 euros in Frankfurt.

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