There are business deals and there are business deals: but we must not let LightSquared steal the taxpayers' money
The problem is the Plan B being proposed by LightSquared's owner, Phil Falcone, through his Harbinger Capital hedge fund. Essentially his proposal is that he should swap what he owns, which is worth very little, for something owned by the taxpayers, which is worth a great deal of money. That just doesn't sound like a good deal for those taxpayers.
The background can get complex at times but here's the simple version. Falcone noted that gaining the spectrum to be able to build a new national cell phone network would be very expensive. Indeed, everyone knew and knows this. However, Falcone spotted what he thought was a cute way to do this. There is spare spectrum assigned for satellite communications: no one has really ever managed to make satellite telephony work financially, outside some very limited applications like ships at sea and explorers in remote areas. Thus this spectrum is very cheap.
Falcone bought into such a satellite company and then attempted to exploit a loophole. It is allowed to build ground stations so as to improve reception of those satellite calls. Essentially, Falcone was going to build many ground stations, providing a national network, using this provision that was originally intended as a much more limited ability to build a few ground stations.
Which is where we come to a problem, a technical one. This satellite spectrum that Falcone bought is very close to the spectrum used by GPS (which is also satellite based of course). When they are both relatively weak satellite signals this isn't a problem for there is no interference betweemn the two signals. However, using that spectrum from ground stations, at much higher power, would provide interference to the GPS system.
Quite how much is possibly arguable and certainly LightSquared has been arguing that it will be minimal, trivial and easily fixed. Others aren't so sure and the FCC ruled that it would be a problem and Falcone can't do what he intended to do.
All of which is just fine so far: not every entreprenurial idea works and it looks like this one won't and it doesn't really matter whether you think it is for the declared technical reasons or for more obscure political ones.
It's the next stage, the Plan B, that needs to be resisted.
"Billionaire Phil Falcone is seeking to swap spectrum owned by LightSquared Inc. with that controlled by the U.S. Department of Defense, a person familiar with the company said, in an effort to salvage his investment and save his hedge fund."
DoD does have lots of radio spectrum, handed out way back when before people realised how valuable it was. In one sense this could be seen as a good idea: releasing some of that un- or under- used spectrum for profitable economic use.
However, that's only part of the story here. For what Falcone is really suggesting is that the spectrum which he owns, worth maybe $500 million, should be swapped for the spectrum that DoD owns, worth many billions of dollars. This is also known as the taxpayer getting screwed out of those several billions of dollars, the difference in value between the two spectrum slots.
This is why it's being suggested of course, but also why we really don't want it to happen.
It might even be a good idea for LightSquared to have access to that DoD spectrum: they would be putting something currently unused to good use after all. But they ought to pay the full market value for it first, not get to swap it for their own devalued assets. There's even a simple method of finding out what that true value is: auction it.
If DoD doesn't need it then just offer it to the open market. Whoever bids the most, AT&T, Sprint, LightSquared, Apple, whoever, gets to hand over the check and own it. We get the spectrum put to good use and we also reduce the deficit by a few billion dollars.
But don't let LightSquared broker a political deal where they get to swap bad spectrum for good. That's like allowing them to buy $10 bills for four quarters. Just not the sort of thing we want to be doing at all.
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