Falcone’s Wireless Venture Is in Spectrum Talks

Billionaire Philip Falcone’s LightSquared wireless venture is in advanced talks to lease its spectrum to U.S. technology companies and has reached agreements with device makers, Chief Executive Officer Sanjiv Ahuja said.

“We are talking to most of the wireless players,” Ahuja said in an interview in New York last week. “We want to serve every player in this industry, from the largest to the smallest,” including wireless, wireline and cable providers, as well as device makers and game manufacturers.

Ahuja’s efforts to build LightSquared into a business run counter to speculation by some analysts that Falcone would seek to sell his telecommunications assets. LightSquared gained most of its assets, including wireless spectrum, through its purchase of SkyTerra Communications Inc., completed this year.

The venture, backed by Falcone’s Harbinger Capital Partners hedge fund, is taking several steps towards becoming a new wireless competitor in the U.S. The company has agreements with several manufacturers to provide devices once it begins leasing its spectrum to partners, Ahuja said, declining to name them.

The venture will expand to 500 employees from about 350 now, said Ahuja, former head of France Telecom SA’s mobile unit.

Besides leasing capacity, the Reston, Virginia-based venture also plans to build a wireless network and rent it to partners such as retailers and cable companies. Ahuja said he expects wireless demand in the U.S. to grow 40-fold over the next four years as people use mobile devices to watch video and browse the Web.

“There is a massive demand-supply gap and it’s only going to get worse,” he said.

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Analysts such as RBC Capital Markets Corp.’s Jonathan Atkin say the venture is most likely to sell its spectrum to a carrier, rather than continue to lease it over time.

“To start out from scratch and build out a network from the ground up is highly speculative,” Atkin said in an interview. “An established company has the resources and manpower to really make this work on a national scale.”

LightSquared said last month it awarded Nokia Siemens Networks a $7 billion deal to build and manage a so-called fourth-generation, or 4G, network. The network will combine terrestrial networks with coverage from two satellites.

Ahuja said LightSquared needs to raise more money beyond the initial $1.75 billion in commitments it announced last month. He said the goal is to create a national network to reach at least 260 million people in the next five years.

LightSquared will need to raise an additional $5 billion or more to build out the network, Piper Jaffray & Co. analyst Chris Larsen said in a research note.

Falcone “is a very savvy investor who knows that spectrum is a valuable asset and that the current carriers need more of it,” Larsen said. “This plan could pressure an incumbent into making a play for the assets.”

The company is on track to begin trials in Baltimore, Phoenix, Las Vegas and Denver by early 2011, Ahuja said.

(Corrects the size of projected increase in wireless demand in sixth paragraph of story published Aug. 2.)
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