Lightsquared's Bankruptcy: VZ, T and Icahn Among Big Winners


Phil Falcone’s attempt to shake up the cellular data market in the United States has all but failed. His company Lightsquared, which has taken a chunk of the value out of Falcone’s Harbinger Capital, filed for Chapter 11 bankruptcy protection yesterday in a move many saw coming. The firm failed to get its creditors to agree to a deal that would give the company more time. The wreckage being colossal it seems there’s no turning back for the company.

As in any bankruptcy how ever there are those who will celebrate the demise and those who will welcome it and even applaud it. This is our list of the winners and losers from Lightsquared’s bankruptcy.

Phil Falcone (Loser): Falcone bet big on Lightsquared. He was trying to wedge into a market that was already saturated. Whether or not the new service would have worked is up for futile debate. The FCC put a stop to it. Now the hedge fund manager has to decide whether to double down on the company or to step away and let losses be losses. His fund took a big hit last year from the firm’s operations and will hardly stand unimpeded if they are to continue supporting it. Falcone’s lost a lot of money and has taken a huge hit to his reputation. Falcone is the most obvious but still the biggest loser from Lightsquared’s failure.

AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) (Winners): Both of these companies were relieved on seeing Lightsquared fall to pieces. The firms currently have a stranglehold on the wireless market in the United States with no other carrier really competing on the sevice they offer. Lightsquared might have changed. the plan was to offer 4G connectivity wholesale to smaller carriers that couldn’t afford the capital investment. That would have let small regional wireless carriers compete with the big ones on the quality of service provided, not something either of the big two would have appreciated. It looks like that may never happen now making AT&T and Verizon big winners from the deal.

Sprint Nextel Corp. (NYSE:S) (Loser): Sprint were to have been Lightsquared’s biggest and most important early customer. The carrier was slow to roll out its own 4G service and Lightsquared’s offering was going to allow them to offer that service and compete directly with the larger carriers. Sprint called off their $9 billion deal with the company after the FCC hampered the possibility of it ever occurring. Now Sprint is left behind the other big networks in service and won’t be able to directly compete nationwide for some time yet. Sprint’s falling behind in third place and a loser from this bankruptcy.

Garmin Ltd. (NASDAQ:GRMN) (Winner): GPS manufacturers are in the middle of a crisis at the moment as the market changes. The mass availability of GPS and other location services on smart phones of all types leaves them in need of change. The last thing they needed was a new service preventing their ability to provide their product. Garmin, among other GPS manufacturers took their concerns to the FCC. They said the spectrum Lightsquared was going to use would interfere with their technologies. They won and the FCC ruled with them.

Carl Icahn (Winner): Icahn bought a huge chunk of Lightsquared’s debt some months back and was seen supporting bankruptcy more recently. Speculation was rife that he had hoped to get access to what is still a very valuable asset, the piece of wireless spectrum the company is holding. Now it looks as though his motives were somewhat simpler. Icahn bought $250 million in company debt for 40% of their face value. In the last two weeks he’s managed to unload the whole thing for 60 cents on the dollar. That nice little 50% return makes Icahn a real winner in this bankruptcy.

The American People (Losers): Calling the American people losers out of this deal may sound harsh but it is directly in the spirit of Lightsquared’s rhetoric. The company sought to break the fascist grip of the large carriers on the data market. That hope is now gone. If Falcone was altruistic in his investment or his idea would have worked then he may be right. The American people may very well be losers out of this deal.

There you have it. It looks like Lightsquared is out of the picture. The big issue left is that of the spectrum people assumed Icahn was after. It’s a valuable asset and despite the problems with it and GPS spectrum people still want it. The wireless spectrum space in the United States is so cramped it will sell with out a problem in the hope that its issues can somehow be remedied. Watch out for news of it as bankruptcy rolls on. The major carriers are the best bet for likely buyers.