WASHINGTON (Reuters) - Hedge fund manager Philip Falcone’s LightSquared MOSAV.UL has lost its main business partner, Sprint Nextel Corp (S.N), which returned $65 million in payments to his telecommunications startup.
Sprint said on Friday it will exercise its right to scuttle the $9 billion agreement that would have allowed LightSquared to use a network Sprint is building to sell its own high-speed wireless service.
The development, which was expected, is another setback for LightSquared, but it does provide the company more cash as it fights for survival.
Sprint had the right to back out of the deal if LightSquared failed to get regulatory approval. Regulators said LightSquared’s network would interfere with the Global Positioning System used by airlines, the military and others.
Last month, the U.S. Federal Communications Commission proposed to indefinitely suspend LightSquared’s authority to use its satellite spectrum for cellular use.
Since then, the company said it would lay off nearly half of its 330 employees. Sanjay Ahuja, a telecommunications industry veteran, also stepped down as chief executive just two weeks after the major blow from regulators.
“We remain open to considering future spectrum hosting agreements with LightSquared, should they resolve these interference issues, as well as other interested spectrum holders,” Sprint said in a statement.
LightSquared said previously it has just several quarters worth of cash left and the $65 million could help the company fight the FCC’s proposal to strip its authority to use its airwaves for a cellular network.
Comments are due on the FCC proposal on Friday and LightSquared is expected to lay out its defense.
“These regulatory delays are unfortunate because they will deprive the American people of the benefits of additional competition in the wireless industry,” said Doug Smith, LightSquared’s chief network officer and interim co-chief operating officer, in a statement on Friday.
The company’s fate is critical to investors in Falcone’s Harbinger Capital Partners, which once controlled $26 billion in assets, but is now down to about $4 billion.
A little more than half of Harbinger’s money is tied up in LightSquared and the hedge fund is the company’s single largest equity investor.
A spokesman for Harbinger said the hedge fund has no separate comment from the one issued by LightSquared.
“Clearly LightSquared is focused on spinning out resources as long as possible and this gives them more cash,” Tim Farrar, a veteran industry analyst and principal at TMF Associates, said about Sprint’s return of $65 million.
“But at the same time, by pushing this situation out further some of the ability to recover assets in the event of a potential bankruptcy also drain away.”
The FCC’s proposal to strip LightSquared’s authority came after the National Telecommunications and Information Administration, which manages military and government spectrum use, said the planned network would interfere with GPS and there was no practical way to immediately solve the problem.
LightSquared argued that any interference is a result of poorly designed GPS receivers that their manufacturers should be obliged to fix.
The company planned to invest $14 billion over the next eight years to build its network, which would be used to sell wholesale wireless services to companies that would, in turn, resell the service under their own brand names.
“For LightSquared, Sprint’s decision will enhance our working capital and provide more flexibility,” Smith added.
Additional reporting by Svea Herbst; editing by Gerald E. McCormick and Andre Grenon