Did the FCC try to drive a LightSquared competitor into bankruptcy?
posted at 8:40 am on February 22, 2012 by Ed Morrissey
The Daily Caller follows up on its dot-connecting yesterday on the Obama administration’s efforts to make LightSquared pay off for its Democratic-donor backers with a look at the other side of crony capitalism. Matthew Boyle tells the story of the original government effort to expand broadband to rural areas, Open Range, which partnered with GlobalStar, a competitor of LightSquared’s predecessor company Skyterra. The difference between the two was that GlobalStar actually owned spectrum allocated for terrestrial cell-system use, which Open Range wanted to use to expand broadband.
Open Range had already received a hefty loan from the USDA’s Rural Utilities Service to roll out their service, but GlobalStar needed to have more satellites in the air to maintain its FCC approval to operate in both spectrum allocations simultaneously. In 2008, the FCC granted GlobalStar a 16-month window to resolve the situation, but a 2009 earthquake in Italy disrupted the completion of the satellites, and they asked for another significant extension. The FCC then slow-walked the waiver application while expediting the sale of Skyterra to newly-minted Obama backer Philip Falcone and Harbinger, now the hedge-fund parent of LightSquared:
Citing the earthquake and disruptions because of the global financial meltdown, GlobalStar filed a request with the Obama administration’s FCC on Dec. 14, 2009, asking for an additional temporary waiver from the agency’s requirements so it could continue building its network.
The FCC didn’t acknowledge receipt of the extension request until March 5, 2010, and didn’t open it up for public notice until four weeks later, on April 2.
During the months while GlobalStar’s request languished in the FCC’s slow-moving bureaucracy, the agency was helping to finalize the sale of SkyTerra to Harbinger. That company would ultimately become LightSquared.
Eventually, the FCC would extend the deadline only until September 15th. While GlobalStar tried to get the FCC to extend the deadline further, the FCC spent the summer flirting with LightSquared, which intended to use satellite-communications spectrum rather than terrestrial spectrum to build their 4G network. In mid-September, with GlobalStar’s extension expiring in just hours, the FCC seemed much more interested in how to make it look like Harbinger hadn’t stuck it to Open Range than in the merits of the Open Range/GlobalStar waiver request:
Documents show that on Sept. 13, three days after Adelstein sent his email, Obama’s technology adviser Phil Weiser hosted another White House meeting. Attendees included Adelstein, de Sa and several other high-ranking officials in the FCC and USDA.
Later that day, after the meeting, Adelstein emailed de Sa in what appears to be an indication of what transpired.
“Thanks for taking so much time for the helpful meeting today,” Adelstein wrote. “Would you mind letting the Harbinger folks know I will call them soon so we look like a coordinated effort so they don’t feel they have unlimited leverage to stick it to Open Range?”
“Happy to hook you up,” de Sa replied, “although one thought is that at the moment the ball is in openrange [sic] court (in that they have the term sheet), so I wonder if rather than spending your intervention bullet now when [there are] no issues with negotiation, whether it would be better to wait until if/when a problem arises after the fcc order comes out?”
de Sa added, regarding Adelstein’s concern that the parties involved “don’t want to give harbinger any ideas about sticking it to openrange,” that it was “totally your call tho, just let me know what u prefer.”
GlobalStar’s final request for an extension on its rule waiver was denied on Sept. 14, the very next day.
Boyle sees three possibilities for this e-mail conversation. It looks like a communication to the White House letting them know that LightSquared’s competition would get the shaft from the FCC, and/or an acknowledgment that the FCC had already tipped Harbinger that they would deny GlobalStar’s waiver request. It could also be a discussion about how to force Open Range to subcontract with LightSquared rather than GlobalStar in order to get even more money into Harbinger’s pocket from the LightSquared waiver, assuming the FCC granted it. Whichever interpretation one chooses, it’s clear that the Obama administration was far more than a disinterested regulator in these events.
This is crony capitalism at its most bald: picking winners and losers through the use of regulatory intervention and favoritism. The loser in this case was Open Range, which filed for bankruptcy in October 2011, a year after the Obama administration and the FCC stuck it to them and GlobalStar. The White House instead favored a venture in which Obama himself was an early investor and whose backers were friends and donors to his campaign — and which had no chance of winning on the merits thanks to their insistence on using satellite-communications spectrum rather than spending the money buying terrestrial-communications spectrum.
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